How do property taxes in Texas work?

Hi friend! Are you curious about how taxes work in Texas? Well today, I am going to answer that and more!

So when I talk about the best neighborhoods, which I do quite often here, they are homes that meet all or most of the below criteria:

• great walkability and/or bikeability
• exclusive amenities
• close proximity to shopping and restaurants
• acceptable commute times and/or a strong local job market
• award-winning public schools
• close to entertainment
• a local calendar of events
• relatively low crime rates.

And I do know, that everything on the above list isn't a priority for everyone, but make the assumption that award-winning schools and a relatively low crime rate is important to almost everyone. Now one thing you aren't seeing on that list is low taxes, but I know this is important to many!

Locally, we view any tax rate below 3% to be low, and any tax rate above 3% to be high. I know this is not the case, across America, and I want to explain what drives the tax rate. There is only one thing determining if the tax rate is "high" or "low".

It is something called a MUD (or sometimes a PUD). The MUD acronym stands for "muncipal utility district" or "public utility district". The MUD or water district is the entity that built the infastructure for the water and sewer system for any particular area. There are somewhere near 1200 water districts.

So to explain this very basic like. A bond ranging between 7 million and 300 million (there are many higher and many lower) was taken out to built that infastructure within that district, and that bond needs to be paid back. 

In Montgomery county (a county north of Houstin, housing The Woodlands), the pay back percentage (aka tax rate) ranges between 0.08% to 1.38%. Over time, these bonds are paid down by the tax payers in that district, and over time, the tax rate also decreases.

So the way an overall tax rate is computed, with other entities. For example:

91 N Misty Morning Trace
The Woodlands, Texas 77381

Asking price is $447,500 and the tax assessed value was $344,710.

Overall tax rate of 2.1432
Taxes w/o exemption for 2019: $7,388

Jurisdiction | Tax Rate
Montgomery County | .4475
Montgomery Co Hospital | .0589
Lone Star College | .1078
Conroe ISD | 1.23
The Woodlands Township | .224
Woodlands Mud #1 | .075

Let's take a new construction example from The Woodlands Hills. The below home was built in 2018. It was one of the first homes in The Woodlands Hills. Tax information isn't availble for brand new homes. This home was tax assessed at $405,390.

Overall tax rate of 3.4217
Taxes w/o exemption for 2019: $12,400
Taxes w/o exemption for 2020: $13,871

Jurisdiction | Tax Rate
Conroe | .4375
Montgomery County | .4475
Montgomery Co Hospital | .0589
Lone Star College | .1078
Willis ISD | 1.27
Mont Co Mud 128a | 1.1

By comparing the two homes above you can see that the MUD of 1.1 versus .075 is the main factor that drives up the overall tax rate.

So what does that really mean? It means you can afford more home in the areas where the tax rate is lower!

So let me address a couple questions you might be asking yourself.

  1. Why is up with tax assessed values (sometimes called tax appraised values) and the gap between tax values and asking price?
  2. How do I get tax exemptions? What are tax exemptions?

So on har.com or any other home search website, you might have noticed a section that looks like this: 

property tax screenshotThis is towards the ends of the web page for any home for sale.

In order to calculate how much taxes a home owner is to pay into the county, etc., the county must first determine its value. So every year the county appraises or assesses the value. I like to use the word assess, just to avoid any confusion when it comes to the appraisal that is performed by a third-party for your bank to determine the home's value prior to them issuing the home loan (prior to you buying the home).

Also every year, I would recommend fighting that tax assessed value. You can always ask me about this in person (on the phone), but every year you will get a new tax assessed value in the mail. Legally, they can increase the value up to 10%, but your home value should only increase 1-4% each year, so I would fight to keep it around 3% or less (the national average). Although the last 12 months the Houston real estate market reflected a 10% (average) increase in sales price value. This is a first I have ever seen or heard of! Eeeek.

And lastly, the tax exemption question.

There are two common tax exemptions in Texas (Harris and Montgomery counties). A general homestead exemption and the "senior exemption" which is called the Age 65 or Older Exemption. Below I will explain both.

Here is a link to the Montgomery Central Appraisal District (MCAD): https://mcad-tx.org/District-Information/Methods-Assistance-Program-MAP-Reviews/Exemptions/Residential. There are 10 different homestead exemptions. 

General Residential Homestead Exemption

Application must be made to receive this exemption. The applicant must own and occupy the residence on January 1 of the year for which they are making application. Every school district is required to exempt up to $25,000 of the assessed value. Other taxing jurisdiction may, at their option, grant a percentage homestead exemption up to and including 20%. An owner qualifying for a general homestead exemption may qualify for mulitiple exemptions.

Age 65 or Older Exemption

A property owner qualifies for the over 65 exemption effective January 1 of any year in which he or she turns 65 or purchases a residence after they are already 65 or older. Every school district is required to exempt up to $10,000 of the assessed value; and to place a freeze ceiling on their tax amount. Other jurisdictions in Montgomery County can elect to give an optional over-65 exemption, and Montgomery County, the City of Conroe, City of Roman Forest and Lone Star College District have elected to place a freeze ceiling on accounts with an over-65 exemption.

On the MCAD website, you can read about all 10 exemptions Montgomery county offers. 

For Harris county, you can learn about their exemptions here: https://hcad.org/hcad-help/texas-first-time-property-owner/exemptions/property-tax-exemptions-for-homeowners/

So how much money does homestead exemption actually save me?

There are so many factors, but on average, you will save about 11%. Keep in mind, is that the more expensive the home, the smaller the savings, but the more expensive the MUD the more the savings.

One quick thing to note, is that when it comes to money, and buying new versus old, sometimes it is a wash. Older home (without renovations) might equal lower taxes, but your maintenance or cost to bring it up to today's standards will be higher versus a newer home with higher taxes that needs little to no maintenance, etc. So, as my dad likes to say, sometimes it might be "six one way or half a dozen the other".

Phew, how about that chapter book crash course on taxes. Lol.

So everything I mentioned above applies to all of Texas. You can see tax rates per county and district by visiting, https://www.har.com/texasrealestate/waterdistricts.

Relocating to the Houston Suburbs?

If you are looking to relocate to the area, we would love to meet you, and hear your story. Below you will find all of my contact information, as well as some homes for sale in the area. We truly look forward to hearing from you! P.S. Don't forget to check out our one-of-a-kind YouTube Channel!

If you are overwhelmed..

Now if you are feeling overwhelmed on where you should plant your roots, I would love to talk to you. You can schedule a call with me by click this link: http://byjoandco.com/call or just send us an email: [email protected].

There are some amazing communities all over the Houston suburbs. In this post, https://search.byjoandco.com/blog/best-neighborhoods-in-houston/, I deep dive into all the different suburbs/neighborhoods that you might want to consider, and why. There are many resources here, so please reach out if you are curious what to look at next! :)

Links to check out..

➟ Our YouTube Channel: http://byjoandco.com/youtube
➟ The Woodlands Playlist: http://byjoandco.com/thewoodlandsplaylist

Thank you so much for trusting us.

- Jordan Marie Schilleci, REALTOR®, Jo & Co. Realty Group

What next?!

At Jo & Co. we know that most poeple struggle with the home buying or selling experience. 

We are a brokerage, real people, that do more for you, by being with you every step of the way, so that you plant your roots in the right soil.

One way that we go above and beyond is with the content we share on YouTube. Click the photo below to explore our channel.

Jo and co realty group YouTube link

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