How to Save Money on Property Taxes

How to Save Money on Property Taxes

As retirees transition to a fixed income, managing expenses can be critical. Many will have paid off a mortgage by this time (shout HOORAY!), but one housing expense still looms:  property taxes. Thankfully, Texas law provides for a variety of property tax exemptions, which lower the taxable value of your homestead, saving you money on property taxes.

Property tax exemptions fall into two main buckets: mandatory exemptions and “local option” exemptions. Mandatory exemptions are exactly that – mandatory. Every taxing district in the state is required to offer them to qualifying taxpayers. Local option exemptions are decided upon by each individual taxing district. Both can save you money, depending on where you live. Here is a breakdown:

Homestead Exemption

Most homeowners know there is an exemption for the payment of some taxes on their homesteads. The mandatory exemption is $25,000.00 of the home’s appraised value. To get the exemption, you have to apply at your local taxing authority (usually your county appraisal district). Most counties have a website that provides the necessary forms to request an exemption. For example, the Dallas County exemption forms can be found here, Collin County here, Tarrant County here, and Denton County here. The general deadline for filing an exemption application for most exemptions is the first day in May.

A homestead can include up to twenty acres so long as the land is owned by the homeowner and used for residential purposes. It must be occupied as the individual’s principal residence. Notably – and we encounter this with estate planning all the time – property held in a “qualifying trust” is still eligible for the homestead exemption. Also of note, any resident of a nursing home can keep a homestead exemption no matter how long their stay as long as she intends to return home.

Over 65 or Disabled Mandatory Exemption

An adult who is disabled or is 65+ is entitled to a tax exemption of $10,000 of the appraised value of their home (Note: there is a 10k exemption or being over 65 and a 10k exemption for being disabled but you can only choose one or the other). This exemption is mandatory under state law.

The qualifications for the over 65 exemption are pretty straightforward: the homeowner must be age 65 or older and live in the house. If the over 65 spouse dies, the surviving spouse can claim the same exemption so long as the deceased spouse died after turning 65; the surviving spouse is at least 55 years old; and the property was and is the surviving spouse’s homestead.

Homestead Tax Ceiling

At least for school taxes, over 65 or disabled homeowners do not have to worry about increases in taxes forcing them out of their home. Texas law mandates a ceiling on the amount of taxes that a homeowner over age 65 or a disabled homeowner will ever be required to pay to the school district. This limit is commonly referred to as the “homestead tax ceiling.”

Deferred Collection of Taxes on Residence Homestead of Elderly or Disabled Person or Disabled Veteran.

Notable to this discussion is the deferred collection rule. If elderly or disabled Texans own a home free of any mortgage, they can avoid being forced out of their home because of failure to pay any property taxes owing to any jurisdiction even if they are being sued by the taxing authorities. This is called a “tax deferral” program. On homes with no mortgage, a 65+ or disabled homeowner can defer payment of current property taxes on her residence homestead until she no longer owns it or occupies it as a residence homestead. The deferral does not eliminate the taxes, it only postpones when the taxes must be paid.

Managing expenses on a fixed income is a big deal in retirement. Understanding the world of property tax exemptions can go a long way to stretching out that nest egg you worked so hard to build.

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