What Are Property Taxes?

Property taxes can be an area of confusion for many homeowners. Unfortunately, failure to accurately understand how property taxes work and budget for them accordingly can have disastrous results. Here is some basic information on property taxes to help you avoid common mistakes and develop a plan of action if you become delinquent on your payments.

(Disclaimer: This article is not intended to provide medical or legal advice and is only for informational purposes. If you think you have asbestos in your home, it is best to consult a professional.)

What are property taxes, and what do they pay for?

Property taxes, also known as ad valorem taxes, are taxes that individuals or corporations who own property must pay to the government. Local assessors determine the amount the owner has to pay in property taxes based on the property's location and overall value. These taxes pay for the community’s local schools, police and fire departments, and roads.

Who has to pay property taxes?

If you own property, you need to pay property taxes unless you are determined to be exempt. Renters, however, are not obligated to pay property taxes – the landlord who owns the property pays them instead.

How much are property taxes?

Property taxes are calculated by county appraisal districts, so they vary from one area to the next. Assessors collect data on all the properties in a county and use their findings to determine how much each property is worth. The assessed value assigned to a given property will usually not be the same as the market value, and it can change from year to year. In some cases, properties may even be fully or partially tax-exempt.

To learn more about your county appraisal district and how they operate, a simple Google search of “[County Name] Appraisal District” should lead you to their homepage. Some districts even have online calculators that allow you to find your home's assessed value in seconds.

To estimate how much you need to pay in property taxes, try inputting your location and home value into this calculator.

When are property taxes due?

Due dates for property taxes vary based on location, but in Texas, they are generally due by January 31 and are considered delinquent if not paid by February 1. However, rather than waiting until the deadline, it is often wiser to pay property taxes before the end of the year in order to deduct the payments from your federal income taxes.

Note that at the time of writing, deadlines may be subject to extension periods on account of the COVID-19 pandemic. Be sure to look up specific due dates for your county and inquire about any applicable extensions to avoid missing important deadlines.

What are property taxes based on?

To determine the amount of property taxes, an assessor will typically multiply the property's value by the local tax rate. Your property's value depends on factors, including the overall state of the property, maintenance costs, and how much similar properties are selling for. County legislators decide tax rates based on the county’s budget and the total amount of revenue generated from sources other than property taxes.

The tax rate is often based on a system known as the millage rate, where one “mill” equals one-thousandth of a dollar. For example, if your property tax rate is 20 mills, that means you owe $20 for every $1000 in assessed property value. That means the owner of a home assessed to be worth $200,000 would need to pay $4000 in property taxes.

Is there any way to make your property taxes cheaper?

If you think you are paying too much in property taxes, you might be able to contest the appraisal of your property. First, examine your most recent property assessment to make sure that everything on it is accurate. Sometimes appraisers make mistakes that significantly impact the determined value of your home. If you notice any errors, such as an incorrect number of bedrooms or failure to recognize a recent renovation, contact your appraisal district right away to have the property reassessed.

It is also possible that your property has been assessed as more valuable than it actually is. If you or a trusted real estate agent can find evidence of approximately three to five similar properties in your area that have sold for less than your property’s assessed value, you can challenge the appraisal.

Different states have different deadlines for protesting property taxes. In Texas, you must file a written notice including your name, the address of your property, and a statement of dissatisfaction to the Appraisal Review Board by April 30.

Also, keep in mind that your property may qualify for property tax exemptions, which can save you a lot of money.

What are the most common types of property tax exemptions?

Tax exemptions vary from one state to another, but the most common types of property tax exemptions in Texas are:

• Residence Homestead: School districts are required by Texas law to provide an exemption of $25,000 on residence homesteads. Individual counties may also offer additional exemptions of up to 20% of a property's appraised value.
• Age 65 or Older or Disabled Persons: Homeowners aged 65 or older or who have a qualifying disability are entitled to an exemption of $10,000. Taxing units may also provide an additional local homestead exemption of $3000 or more. If the homeowner who qualifies for this type of exemption passes away, a spouse aged 55 or older who lives on the property can also receive the exemption.
• Veterans: Disabled veterans qualify for an exemption of $12,000. This exemption is also available to a disabled veteran’s spouse after the veteran’s passing, provided that they continue to live on the property and do not remarry. Spouses of military personnel who die while on active duty are also entitled to a total property tax exemption.

You can find more information about available Texas property tax exemptions here. If you live outside Texas, try doing a Google search for [“your state” property tax exemptions].

What happens if you can't or don't pay your property taxes?

Failure to pay property taxes on time (i.e., usually by February 1) in Texas will cost you a penalty charge of 6%. The interest rate starts at 1% and continues to accrue by 1% per month. On July 1, the penalty increases to 12%, and taxing units may hire private attorneys to charge an additional penalty of up to 20%. Note that eligible military personnel on active duty may be exempt from penalties or interest.

It is also important to be aware that once a property is delinquent, a tax lien can be attached to it. A property with a tax lien cannot legally be sold or refinanced until the owner pays off the full amount owed in taxes to the government and gets rid of the lien. If you attempt to sell the property before the tax lien is paid off, it will have to be paid at closing by the seller or the buyer before title for the home can be cleared and the deed to the property can be transferred.

Can you lose your property if you don't pay property taxes?

Possibly the biggest motivation to pay property taxes on time is the fact that tax liens enable taxing authorities to take you to court and propose a tax foreclosure. If you don’t have evidence that you can pay off your debt or any other valid defense, the government gains the right to auction your property off. If the property doesn’t sell at the auction for a minimum bid of either the market value or the total amount owed in taxes, it officially becomes the county’s property to do with as they please.

How does a tax foreclosure work?

If your property is foreclosed on in Texas, you will receive a written notice stating the date, time, and location of the foreclosure sale. This information is also available to the public in the local newspaper and/or online. The owner has until the date of the sale to pay off their debt in full; otherwise, the auction will take place as planned. The winning bidder then receives a deed to the property, subject to the right of redemption.

Can you stop a property tax foreclosure?

There are ways to prevent a property with a tax lien from being sold, the best option being to pay off all debts accrued before the day of the sale. A private property tax loan might be helpful in achieving this goal.

You may also be able to stop the sale by enrolling in a payment plan. These plans, which all taxpayers are entitled to under Texas law, have high down payments and interest rates and are only available once every two years. You can learn more about the different plans available in Texas here.

Be aware that in the case of a property tax foreclosure, a deed in lieu of foreclosure is not an option.

When in doubt, try contacting a lawyer to determine the best way to prevent foreclosure.

What is a “redemption” with regard to property tax foreclosures?

After a property is sold in Texas, there is a redemption period (usually two years) during which the property’s former owner can reattain the property by paying the auction winner the amount paid in the sale plus the deed recording fee, the full cost of property taxes including interest and penalties, and a redemption premium of 25% of the cost of property maintenance during the first year of the redemption period and 50% during the second year.

Can a homesteaded property be foreclosed on for failing to pay taxes?

A property is considered homesteaded if the home and land in question are the owner’s current place of residence. Both homesteaded properties and properties being rented out are subject to the same tax foreclosure process, but homestead owners have the advantage of potentially being able to defer their taxes.

If a homeowner is eligible for a Homestead Tax Deferral, they can file a deferral affidavit with the county appraisal district for the opportunity to pay the taxes on 105% of their property’s appraised value for the previous year plus new home improvements to postpone deadlines on any remaining property taxes for an interest rate of 8% annually.

Homesteaded and agricultural properties also have a redemption period of two years after a foreclosure sale, while other types of properties have only 180 days.

How can I sell a home with property tax issues?

If you’re looking to prevent a tax foreclosure on your Houston or Katy area home, consider selling your property to AMI. We buy houses in all conditions, regardless of how far behind you are on property taxes. Contact us today for a no-obligation cash offer.