Investment home/Property tax - Texas

7 Replies

Hey All,

This is such a great forum. I am glad to have come across it!

We are in the process of buying an investment home. Property tax is pretty high at 2.7-2.8% (from what I see) in the areas we are looking for (This is Texas!!).

How does the property tax work for investment homes in Texas/Austin area (when they are not your primary residence/and you cannot claim homestead exemption)?

I can see that for 2021, the house we want to consider is assessed only at around $320K and the tax bill is around $9000. If we decide to put in an offer, a successful bid may end up being in the 420k price range.

For next year's (2022) property tax assessment, can I assume the county will not stick to a max 10% cap on the assessment (320k+32k) since this is an investment home and instead it can be at the minimum, my purchase price or more? If they come up with a very high number, would I be able to contest it based on proof of my purchase price or is the assessment strictly governed by comp.sales in the area?

Are there any rules at all on how further they can go with property taxes on investment/non-primary residence homes?

I am trying to do the math and property tax is a huge component. So any guidance will be helpful!

Thanks!

SR

Hey Sam, I'm not a tax expert, but I am an agent and an investment property owner in Austin and surrounding areas. As far as your valuation, Texas is a non-disclosure state, so in theory the county tax assessor shouldn't have the information about what you paid... but in my experience they get pretty close. If they assess you for an amount higher than you paid, then you can produce your closing HUD statement and they will drop your valuation to what you actually paid. They will send you a letter asking you what you paid, but you can ignore that.

Since it is not your primary residence, they can raise your valuation by any amount they see fit.  The 10% YoY cap applies to primary residences only (homestead exemption).  You can protest your valuation or hire a company like Five Stone to protest on your behalf.  I recommend you do that every single year.  

If you're working with an agent here, they can help you determine the tax rates - they vary block by block.  I've seen anything from 1.6% in unincorporated Travis County to nearly 3% in areas with special utility assessments, etc.  Good luck!

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@Rick Reeder and @Sam Raj I have protested my property taxes in multiple jurisdictions and while Texas may be a non-disclosure state, they have all used MLS data and present that to you in the proceedings. Not sure how they get access to MLS, but I know in Dallas county the ARB says they have friends who provide access.

@Sam Raj   Your concerns are valid and although you seem to be asking a question, I think you have answered your question perfectly....Taxes should be based on market value....so plan to pay on what you paid.  Right now now cap on increases.   Lots of compromises being discussed, but they have also been discussed for years.

@Sam Raj

Hey Sam,

The homestead exemption reduces the tax assessed value of a homestead by $25k and limits the amount the tax assessor can raise the tax assessed value of your home by 10% per year. So on a ~$400k property the homestead exemption would only save you about 6% on your property tax bill. Everything else about the tax assessed value, tax rate, and tax bill are the same for a homestead vs. investment property.

When a property is sold, the tax assessor send the new owner a letter asking for details about the sale like the price, concessions, and amount of repairs needed. They use this sales data to determine the tax assessed value of the homes and comparable homes. Fun fact: CoreLogic got busted for selling the Austin Board of Realtor's MLS sales data to the Travis County Appraisal District in 2019, so up till then the tax assessor was using MLS sales data.

I would assume the tax assessed value to go up to at least the list price of the home and if its more than your purchase price, you can protest your property taxes and use your HUD statement as evidence as @Rick Reeder suggested.

There are no $ or % caps on how high they can raise the tax assessed value. 

Let me add also that some companies are better than others at reducing property taxes, btw. Property taxes are a big deal in the metro. Do keep in mind that property tax increases are reflective of increased value of properties. Its great that properties are increasing in value! But its the opposite of great that the tax bill increases. When you raise the rents be sure to tell the tenants that the reason for the increased rent is the tax bill so maybe they will vote more often to cut out the city excess crap like the hotels for the homeless.