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Governor Abbott Signs Largest Property Tax Cut in Texas History: Voters Must Approve in November
Posted by Powell Tax Law on 6 Oct, 2023
Governor Greg Abbott ceremonially signed legislation in August that will deliver the largest property tax cut in Texas history if approved by the state’s voters in November.
"I am signing a law that will ensure more than $18 billion in property tax cuts—the largest property tax cut in Texas history," said Governor Abbott. "If passed by voters this fall, Texas homestead exemptions will rise to $100,000, senior homeowners will be protected from being priced out of their home, the small business exemption for the Franchise Tax will double, and Texas small businesses will be protected from excessive appraisal increases."
“As I travel across Texas, there’s one thing I hear loud and clear: Property taxes are suffocating Texans. We must fix that this session,” Abbott said in that February address. “That money belongs to the taxpayers. We should return it to you with the largest property tax cut in the history of Texas.”
Senate Bill 2 and Senate Bill 3 Cut Texas Property Taxes
Under Senate Bill 2 and Senate Bill 3, $18 billion of Texas' historic budget surplus will be allocated toward driving down school district property tax rates, increasing homestead exemptions for Texas homeowners, and increasing Franchise Tax exemptions and appraisal caps for small businesses.
SB 2 was passed unanimously in the Senate and by a vote of 133-4 in the House. SB 3 was passed unanimously in the Senate and by a vote of 131-5 in the House.
"The signing of this Texas-sized tax cut, the biggest property tax cut in history, is a massive victory for all 5.7 million Texas homeowners," said Texas Lieutenant Governor Dan Patrick. "The combination of compression and the $100,000 homestead exemption is a powerful one-two punch that will cut school property taxes for the average priced home by $1,250 to $1,450 every year on their homesteaded property."
Cheers on the Chamber Floor When Tax Cuts Passed
The Texas Tribune reported that a cheer went up on the chamber floors upon the passage of three bills that make up the property tax cut package: SB2, SB3, and House Joint Resolution 2, a constitutional amendment required to authorize the tax cuts.
Highlights of the property tax cut package, according to the Texas Tribune, include:
Puts $12.6 billion of the state’s historic budget surplus toward making cuts to school taxes for all property owners, dropping property taxes an average of more than 40 percent for some 5.7 million Texas homeowners.
Offers brand-new tax savings for smaller businesses and other commercial and non-homesteaded properties such as increasing the Franchise Tax “no tax due” threshold to $2.47 million and removing burdensome filing requirements for those who do not owe tax.
$5.3 billion expansion of the state’s homestead exemption from $40,000 to $100,000.
Offers additional cuts for seniors and property owners with disabilities, averaging about $170 more per year.
First-ever temporary 20 percent cap on appraisal increases for properties valued at $5 million or lower that aren’t considered homesteads. Those would include second homes, vacation properties, rental houses, or commercial retail or business properties.
Bettencourt told the media that the new exemption combined with the school tax cuts would save homesteaders — Texans who live in a residence they own — an average of $1,300 a year in property taxes.
“At the start of the session, state leaders set out to pass legislation that would provide relief in a way that property owners would actually see and feel. This $18 billion package—the largest in the country—will do just that. I appreciate the hard work of all House members who helped make this historic achievement possible and am grateful to our Senate counterparts for working with our chamber to get this done," said House Speaker Dade Phelan.
Texas Has 6th Highest Property Tax Rate in the Country
KXAN reported in May that while Texas does not have a state income tax, it does have property taxes that have been rising for the last decade.
“Many state homeowners have seen their taxes rise as the state’s tax burden goes up. But the amount you pay depends on where you live in the state, and the appraisal value of your real estate and other property in your area and county. Also, local municipalities and school districts can affect your property tax rate,” reported KXAN.
According to the Tax Foundation analysis, Texas has the 6th highest average property tax rate in the country:
Property Taxes Paid as a Percentage of Owner-Occupied Housing Value, 2021 (Top 20 States)
New Jersey 2.23 percent
Illinois 2.08 percent
New Hampshire 1.93 percent
Vermont 1.83 percent
Connecticut 1.79 percent
Texas 1.68 percent
Nebraska 1.63 percent
Wisconsin 1.61 percent
Ohio 1.59 percent
Iowa 1.52 percent
Pennsylvania 1.49 percent
New York 1.40 percent
Rhode Island 1.40 percent
Michigan 1.38 percent
Kansas 1.34 percent
Maine 1.24 percent
South Dakota 1.17 percent
Massachusetts 1.14 percent
Minnesota 1.11 percent
Maryland 1.05 percent
Meanwhile, the five states with the lowest average property tax rates were:
Hawaii 0.32 percent
Alabama 0.40 percent
Colorado 0.55 percent
Wyoming 0.56 percent
Louisiana 0.56 percent
“Some states with high property taxes, like New Hampshire and Texas, rely heavily on them in lieu of other major tax categories. This often involves greater devolution of authority to local governments, which are responsible for more government services than they are in states with greater reliance on state-level revenues like income or sales taxes,” said the Tax Foundation. “Other states, like New Jersey and Illinois, impose high property taxes alongside high rates in the other major tax categories.”
Tax Cuts Will be Applied to 2023 Tax Bills if Approved by Voters
The property tax cuts must be approved by Texas voters in November.
“But before they can go into effect, Texas voters will first have to decide in a constitutional election on Nov. 7 whether to allow the state to spend billions in taxpayer money — mainly collected from Texans during the past two years — to pay for the massive cuts,” reported the Texas Tribune. “If approved, an outcome that seems likely given voters’ support of tax cuts in the past, the changes would be applied for the 2023 tax bills due in January.”
If the changes in the tax code that require voter approval get the green light, they would mostly go into effect automatically with no action required by property owners, according to the Texas Tribune.
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