Texas Proposition 4, the Property Tax Changes and State Education Funding Amendment, was on the ballot in Texas as a legislatively referred constitutional amendment on November 7, 2023.
It was approved by voters 83% in favor. The key items related to Property Taxes were:
A “yes” vote supported amending the state constitution to:
- increase the homestead tax exemption from $40,000 to $100,000;
- authorize the state legislature to limit the annual appraisal increase on non-homestead real property;
A “no” vote opposed this constitutional amendment to increase the homestead property tax exemption; authorize the state legislature to limit the annual appraisal of non-homestead real property
Prop 4 Overview
Proposition 4 amended the homestead tax exemption, increasing it from $40,000 to $100,000, effective from the tax year starting January 1, 2023. It also empowered the state legislature to cap the annual increase in appraisals for non-homestead real properties. This cap would be based on the lower of the property’s recent market value as determined by the appraisal entity or 120% (or possibly more) of its appraised value from the previous tax year. Additionally, the amendment allowed the state legislature to set extra criteria for this appraisal cap, which would become effective either upon the law’s enactment or from January 1 of the year following property acquisition, whichever is later. This aspect of the amendment would sunset on December 31, 2026.
Furthermore, the amendment mandated a reduction in property tax limits for elderly or disabled homeowners with homesteads, calculated as $15,000 times the 2022 tax rate for general primary and secondary public school purposes, starting from the 2023 tax year. Should there be any changes in the general school district homestead exemption for different resident categories, the legislature is required to adjust the tax cap for those homesteads accordingly, based on the modified exemption and the relevant public school tax rate. Proposition 4 also gave the state legislature authority to legislate on the governance of appraisal entities in counties with over 75,000 residents. It excluded appropriations for ad valorem tax payments from the constitutional limit on state tax revenue.
In summary, Texas Proposition 4 is expected to have several significant impacts on property owners in the state:
- Increased Homestead Exemption: By raising the homestead tax exemption from $40,000 to $100,000, Proposition 4 effectively lowers the taxable value of a homeowner’s primary residence. This change means that homeowners will pay property taxes on a reduced value of their property, leading to potential savings in property taxes for those who qualify for the homestead exemption.
- Cap on Appraisal Increases for Non-Homestead Properties: The amendment allows the state legislature to set a limit on how much the appraised value of non-homestead real properties can increase annually. This cap is based on the lower of the recent market value or 120% (or potentially more) of the property’s appraised value from the previous year. This measure could help stabilize or potentially reduce property tax bills for owners of non-homestead properties, like rental or commercial properties, by limiting sudden increases in appraised values.
- Extra Criteria for Appraisal Cap Eligibility: The proposition permits the state legislature to establish additional eligibility requirements for the appraisal cap. This could mean that property owners might have to meet certain conditions to benefit from the appraisal cap.
- Tax Reduction for Elderly or Disabled Homeowners: The amendment requires a reduction in property tax limits for elderly or disabled homeowners with homesteads. The reduction is calculated based on a set formula, which could lead to lower property tax bills for these groups.
- Adjustments in Tax Caps Following Exemption Changes: If there are changes in the school district homestead exemptions for different resident categories, the legislature must adjust the tax caps for those homesteads in accordance with the modified exemptions. This ensures that the benefits of any changes in homestead exemptions are extended to these specific groups.
- Governance of Appraisal Entities in Larger Counties: By allowing the state legislature to enact laws concerning the governing boards of appraisal entities in counties with populations over 75,000, there might be changes in how properties are appraised in these areas, potentially affecting property tax bills.
- Exclusion from State Tax Revenue Appropriations Limit: The exclusion of appropriations for ad valorem tax payments from the state’s constitutional appropriations limit could have broader fiscal implications, although it may not directly impact individual property owners.
Overall, the impact of Proposition 4 is primarily in potentially reducing property tax bills for many property owners, particularly homeowners, and stabilizing property tax liabilities for non-homestead property owners. The exact impact will depend on individual circumstances, such as the value of the property, the owner’s eligibility for exemptions, and local tax rates.
