Texas Property Tax Glossary
Home property taxes are taxes paid on real estate property that individuals, homeowners, or corporations own. Property taxes are based on the property’s assessed value and many consider them a regressive tax. These taxes are used to fund services such as schools, law enforcement, fire protection, education, road and utilities, and other community services.
Texas has no state property tax. Instead, local governments, such as counties, set the tax rates and collect the taxes used to provide services in their locality. Here is a list of terms and definitions that you will come across when learning about the Texas Property Tax. You can learn more in the Texas Property Tax Basics guide.
Property Tax Terms
Ad Valorem Tax
A tax based upon value.
Administrative Appeal
Refers to the informal hearing and appraisal review board (ARB) hearing during the property tax appeal process. The administrative appeals must be exhausted before a property owner can file a judicial appeal.
Appraisal
The process of valuing a property and determining its market value.
Appraisal District
The appraisal district in each county is responsible for appraising the value of properties within the county. You can go to the appraisal district to answer questions about the appraisal process, including protesting the appraisal.
Appraisal Phase
Texas properties are appraised from January 1st through May 15th of the year, and appraisal notices are sent to property owners. Appraisal records are prepared and submitted to the ARB.
Appraisal Review Board (ARB)
The ARB is a board of local citizens appointed by the local administrative district judge in the county. The ARB hears protests between property owners and the appraisal district about taxability and property values.
Appraised Value
The value upon which property taxes are calculated. Both real property and business personal property can be partially or totally exempt. The homestead exemption is an example of a partial exemption for real property. The freeport exemption, which applies to inventory kept in the state for a limited period of time, is an example of a complete exemption.
Assessment Phase
Occurring from July 25th through October 1st, local taxing units receive the approved appraisals, and tax rates are set and imposed. Then, tax bills start being sent to property owners.
Business Personal Property
Tangible personal property used for the production of income. In Texas, it is also taxable at the same tax rate as real property. Examples of BPP include inventory, office equipment, office furniture, heavy equipment, trucks, and cars.
Central Appraisal District (CAD)
An organization that compiles an inventory of property within the county and values it periodically using mass appraisal. The central appraisal district is charged with maintaining detailed information for the properties and administering exemptions. Most appraisal districts do not send tax bills; their activities are limited to determining market values and appraised values which are submitted to tax entities who prepare and mail tax bills. Each Texas county has an appraisal district or the activity is outsourced to another appraisal district. Types of property listed include real property, business personal property, and minerals.
Chief Appraiser
Chief administrative officer of a central appraisal district.
Collection Phase
From October 1st through January 31st, current taxes are collected from property owners. On February 1st, penalties and interest will be charged on unpaid taxes, with additional penalties starting on July 1st. Note - deadlines that fall on non-business days are extended to the next business day.
Cost Approach
Preparing a cost approach for real estate involves estimating the replacement cost of the property, subtracting an allowance for all types of depreciation, and adding the market value of the land. The sum of the depreciated replacement cost and land value is the indication of market value via the cost approach. This is one of the three generally accepted appraisal methods of valuing real estate.
Equalization Phase
Occurring from May 15th through July 25th, this is the time for Texans to have their protests and challenges heard and determined by the ARB. The ARB will generally approve appraisal records by July 20th, and the appraisals are then supposed to be certified by the Chief Appraiser by July 25th and sent to local taxing units.
Homestead Cap
A limitation on the increase in assessed value but not market value for homesteads. This limitation applies only to homesteads and not to second residences, homes owned for investment or any other type of real property, personal property or minerals. The limitation is 10% per year, times the number of years as the property was last reappraised, plus the market value of improvements added since the property was last appraised.
Income Approach
The income approach can be performed using either a direct capitalization approach or a discounted cash flow analysis. The direct capitalization approach is most frequently applied during property tax appeals for income properties in Texas. Income properties would include apartments, office buildings, retail centers, and industrial properties that are totally or partially leased to third parties to produce income. This is one of the three generally accepted appraisal methods of valuing real estate.
Judicial Appeal
Property owners may file a judicial appeal, or a lawsuit in state district court, if they are not satisfied with the result obtained at the appraisal review board hearing.
Local Taxing Units
The local taxing units set your property tax rates. These include counties, school districts, cities, junior colleges, and special purpose districts. You can contact your local taxing unit(s) for answers to questions regarding tax rates and tax bills.
Market Value
The price that a property would be sold for in the current market if the seller is given a reasonable time frame to find a buyer. Both the seller and buyer know all uses of the property and restrictions on its use—also, both the seller and buyer are trying to maximize their gains.
Notice of Appraised Value
A document sent by the county appraisal district to inform you of your property’s appraised and taxable value of both the current and prior year. The Notice of Appraised Value will explain available exemptions, an estimate of taxes, and instructions on protesting the appraisal.
Notice of Protest Form
A form that is for use by a property owner or the owner’s designated agent to file a protest regarding certain actions of the appraisal district responsible for appraising the owner’s taxable property and have the appraisal review board (ARB) hear and decide the matter.
Personal Property
Property that is tangible yet is not real property. In Texas, the typical basis for differentiating between real property and personal property is whether it is attached to the real property.
Property Tax
A tax that is paid to a local government entity or taxing authority by individuals or corporations that own property. For a tax entity, the tax is calculated by multiplying the appraised value by the tax rate. If the asset is partially or completely exempt or subject to a homestead cap, the assessed value may differ from the market value.
Property Tax Cycle
The four main phases that occur in the Texas property tax system comprise t he property tax cycle. These phases are appraisal, equalization, assessment, and collection.
Protest
The property owner’s right to appeal or object to an action of the chief appraiser, appraisal district or appraisal review board that applies to or adversely affects the property owner. Most property tax protests relate to the market value determined by the appraisal district. Other protests are filed regarding an unequal appraisal, exemptions, agricultural valuation and a variety of other issues. Property owners can appeal annually on the market value and unequal appraisal regardless of whether the appraisal district changes the market value.
Protest Deadline
In Texas, May 31 is the typical deadline for filing a property tax appeal. However, the deadline is technically the latter of May 31 or 30 days after the appraisal district mails a notice of appraised value. (It is 30 days after the date the appraisal district mails the notice of appraised value. It is not 30 days after the property owner receives the notice.) If the property tax protest deadline falls upon a holiday or weekend, the dealine is extended until the following workday. Property tax protests are considered timely filed if mailed by first-class mail deposited in the mail on the deadline day.
Regressive Tax
A tax that does not correlate with an individual’s earnings or income level. Property taxes and sales taxes on goods and services are generally examples of regressive taxes.
Residence Homestead Exemption
A partial exemption of property taxes in Texas for owners of a residence. Qualifications include owning the house on January 1 and living in the house on January 1 of the tax year in question. In many jurisdictions, the benefit of a homestead exemption is property taxes are reduced by approximately 20%. However, homestead exemptions vary from tax entity to tax entity. Homeowners must apply for a homestead exemption. It is not necessary to apply annually once the homestead exemption has been approved. But, if the chief appraiser requests a new application, the homeowner must respond to maintain their homestead exemption.
Sales Comparison (or Market) Approach
First, you compile information on sales of comparable properties, sometimes referred to as comps. The appraiser considers factors such as date of sale, property type, size, age, condition, and location when determining which comparable sales to utilize. After selecting comparable sales, the appraiser makes adjustments for factors such as changes in market conditions, conditions of sale (i.e., distress sale), property rights conveyed, age, size, location, and condition. Lastly, you determine an indication of value for the subject property using the adjusted values calculated for the comparable sales.
Tax Deferral
Qualified owners can get a tax deferral that allows them to postpone when taxes are due without being levied any delinquent penalties. However, interest is charged on deferred taxes, and both the interest and accrued taxes must be paid within 180 days of the end of the deferral.
Tax Exemption
A partial tax exemption removes a percentage or fixed dollar amount of a property’s value from taxation. A full tax exemption will exclude the entire property from taxation. Exempted taxes do not need to be repaid. Exemptions for charitable organizations, religious organizations, and youth spiritual, mental, and physical development associations provide tax relief to groups that improve the lives of their members.
Real estate and business personal property can be excluded in part or whole. Residence homestead exemptions differ between tax entities. A homestead exemption must be applied for before the deadline. There are certain exceptions to the market valuation and depreciation of real property in the Texas constitution. In some cases, as with property owners older than 65, surviving spouses, veteran’s surviving children under 18 years of age, or disabled veterans, a property owner may be required to present proof of age or disability.
Tax Levy
A legal seizure of your property to satisfy a tax debt
Unequal Appraisal
Occurs when the market value for a property exceeds the market value established by the appraisal district for comparable properties after making reasonable adjustments. Unequal appraisal sometimes occurs when properties are selectively reappraised following their acquisition.
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