Texas Homestead Exemption: Why Your Property Tax Jumps the Year After You Buy

You budget from the tax figure you saw on the listing. You close. Twelve to eighteen months later your servicer runs an escrow analysis and your payment goes up — sometimes substantially — and you cannot work out what changed, because the house did not.

What changed is that the previous owner's property tax protections stopped applying, and yours had not started yet.

Key takeaways

• The homestead exemption belongs to the owner, not the property. The seller's exemption does not transfer to you.
• Texas caps how much a homestead's appraised value can rise each year at 10% plus new improvements.
• That cap does not apply in your first year. It takes effect on January 1 of the tax year following the first year you qualify.
• A buyer who acquires after January 1 may still get the general homestead exemption for part of that year — but only if the previous owner did not already receive it for that year.
• School district exemptions are the largest piece: $140,000 of appraised value, with an additional $60,000 for owners who are 65 or older or disabled.

What the homestead exemption actually removes

Texas Tax Code section 11.13 sets out the residence homestead exemptions. The main ones:

• County purposes: $3,000 of assessed value, under section 11.13(a).
• School district: $140,000 of appraised value for an adult's residence homestead, under section 11.13(b).
• Age 65 or older, or disabled: an additional $60,000 school district exemption, under section 11.13(c).

Individual taxing units may also adopt their own optional exemptions, so the total varies by where you live. The school district exemption is normally the one that moves the number the most.

The 10% cap, and why it does not help you at first

Texas Tax Code section 23.23 limits how fast the appraised value of a residence homestead can climb. An appraisal office may increase the appraised value for a tax year to no more than the lesser of:

1. the market value for the most recent tax year the appraisal office determined market value; or
2. the sum of 10% of the prior year's appraised value, plus the prior year's appraised value, plus the market value of all new improvements.

Two details make this matter enormously to a new buyer.

The cap is tied to the owner, and it resets. Section 23.23(c) provides that the limitation "takes effect as to a residence homestead on January 1 of the tax year following the first tax year the owner qualifies the property for an exemption under Section 11.13," and expires on January 1 of the first tax year that neither that owner nor their spouse or surviving spouse qualifies.

In plain terms: a seller who owned for fifteen years may have an appraised value far below market because the cap held it down year after year. When they sell, that protection ends. The property can be appraised at market value, and you do not get cap protection until the year after you first qualify.

New improvements are excluded. "New improvement" means an improvement made after the most recent appraisal that increases market value and was not included in the prior year's appraised value. Repairs and ordinary maintenance do not count — so fixing a roof is not a new improvement, but adding a room is.

Filing in your purchase year

Section 11.42(a) sets the general rule: eligibility for an exemption is determined by the claimant's qualifications on January 1, and a person who does not qualify on January 1 may not receive the exemption that year.

There is an important exception for buyers. Section 11.42(f) provides that a person who acquires property after January 1 may receive a section 11.13 exemption — other than the age-65 or disability exemptions under 11.13(c) and (d) — for the applicable portion of that tax year, immediately on qualification, if the preceding owner did not receive the same exemption for that tax year.

That last clause is the catch. If the seller already claimed the homestead exemption for the year you bought, you cannot also claim it for that same year. You wait for the following January 1.

Section 23.23(c-1) then treats an owner who receives the exemption under 11.42(f) as having qualified as of January 1 of the tax year following acquisition — which is when the cap begins.

Why this shows up as an escrow shortage

If your loan has an escrow account, your servicer collects one twelfth of the estimated annual tax each month. At closing, that estimate is often built on the most recent available tax figure — which may still reflect the seller's exemption and their capped value.

When the appraisal district reassesses without the seller's protections and the actual bill arrives higher, two things happen at once: the servicer has to pay a larger bill than it collected for, and it has to raise your monthly collection going forward to cover the next year plus the shortfall. That combination is why the increase can feel disproportionate.

None of this is a mistake by anyone. It is the predictable result of a tax estimate built on the prior owner's status.

What to do

• File your homestead exemption application with the county appraisal district as soon as you qualify. It is free. Appraisal districts do not charge for it, and any service offering to file it for a fee is selling you something you can do yourself.
• Ask for a payment estimate that does not assume the seller's exemption. Before you write an offer, ask your loan officer to model the tax at market value without the seller's protections. It is a more honest number.
• Expect the first escrow analysis to move. Set aside for it rather than being surprised by it.
• Check whether you qualify for additional exemptions. The over-65 and disability exemptions under 11.13(c) are significant, and they follow different qualification-date rules under 11.42(c).

Related Texas resources

For county-level financing limits, see our Texas loan limits guide, and for assistance programs, the Texas down payment assistance guide. If you already own and are considering pulling equity out, note that Texas has its own constitutional rules — see our post on Texas cash-out refinance rules.

Local pages: Austin, Houston, Dallas–Fort Worth, and San Antonio. You can also model payments with our calculators.

To get a payment estimate that reflects what you will actually pay, browse our loan officer directory or get started.

Frequently Asked Questions About Texas Homestead Exemption After Buying

Does the seller's homestead exemption transfer to me in Texas?

No. The exemption belongs to the owner who qualified for it, not to the property. You must apply for your own homestead exemption with the county appraisal district once you qualify.

Why did my Texas property tax go up so much after I bought?

The prior owner's 10% appraisal cap ended when they sold, so the appraisal district can reassess at market value, and the cap does not protect you until January 1 of the tax year following the first year you qualify for a homestead exemption.

Can I claim the Texas homestead exemption the same year I buy?

Sometimes. Under Tax Code section 11.42(f), a buyer who acquires after January 1 may receive the general homestead exemption for the applicable portion of that year, but only if the previous owner did not already receive the same exemption for that tax year.

How much is the Texas homestead exemption worth?

Section 11.13 provides $3,000 of assessed value for county purposes and $140,000 of appraised value for school district taxes, with an additional $60,000 school district exemption for owners who are 65 or older or disabled. Individual taxing units may adopt further optional exemptions.

Does the 10% cap apply to home improvements?

No. The cap calculation adds the market value of all new improvements on top of the capped amount. A new improvement is one that increases market value and was not in the prior year's appraised value; repairs and ordinary maintenance do not count.

Sources

• Texas Tax Code section 11.13 (residence homestead exemptions)
• Texas Tax Code section 11.42 (exemption qualification date)
• Texas Tax Code section 23.23 (limitation on appraised value of residence homestead)

This article is for general information only and is not legal, tax, or financial advice. State law and investor guidelines change; confirm current requirements with a licensed professional before making decisions. Xpert Home Lending, Inc. is an Equal Housing Lender.