Tax Time in Texas – Homestead Exemption Q&A with Roland Love

By Roland Love, Vice President, Business Alliances & Field Operations

Our recent note regarding the legislative change generally allowing a person to claim a homestead exemption anytime during the year – with some limitations – elicited a number of great follow-up questions. So we thought it would be good to share those with others. First, it is worth reviewing a brief recap of the Texas Tax Code provisions affecting the residence homestead exemption.

The Property Tax Code is found in Chapters 1 – 43 of the Texas Tax Code. It is extensive but important to this discussion are the following:

  • Chapter 11 – Taxable Property and Exemptions
    • 11.13 – Residence Homestead
    • 11.23 – Limitation on Appraised Value of Residence Homestead
    • 11.42 – Exemption Qualification Date
    • 11.43 – Application for Exemptions
  • Chapter 23 – Appraisal Methods and Procedures
    • 23.01 – Appraisals Generally
    • 23.23 – Limitation on Appraised Value of Residence Homestead

Also, the Texas Constitution creates a right to a residence homestead exemption in Article VIII, Section 1-b.

All that said, the recent legislative change impacted only Sections 11.42, 11.43, and 23.23 that are relevant to this discussion. There are also amendments to Section 26.1115. Calculation of Taxes and the Education Code which are not germane to this discussion. In particular, note that the actual residence homestead exemption provisions were not amended, just provisions dealing with the timing of applying and qualifying for a residence homestead exemption.

Thus 11.42 was amended to permit a person acquiring real property during the year to apply for and receive an exemption for the remainder of the year “if the preceding owner did not receive the same exemption for that tax year.” Why the quoted language? The residence exemption is a set amount, not determined by the character of the owner, and is already applicable to the property for the year. Remember, 11.42 sets January 1 as the date to determine an exemption status for a property (with a number of exceptions stated in 11.42, including a totally disabled veteran and a surviving spouse). Section 23.01 sets January 1 as the date for determining appraised value – also relevant to our discussion.

Also important, the 11.42(f) amendment excludes the over 65 exemption and the general disability exemption. And while May 1 is generally the deadline to apply for an exemption, a person acquiring real property after January 1 has a year to apply. Moreover, of assistance to those acquiring property mid-year, 23.23 was amended to provide that a person receiving an exemption mid-year will also be considered to have qualified for the exemption as of January 1 for the following year.
So – short summary – a person acquiring real property after January 1 may apply for a homestead exemption. Still, it is only necessary if the property does not already have a homestead exemption. Nothing in the legislation mentions portability, removing a homestead exemption, or otherwise affecting an existing residence homestead exemption. A new homeowner that already had a homestead exemption on a property it is selling may apply for a new homestead exemption. This may create a permitted two residential homestead scenario for a while, but otherwise, a homeowner may not have two residential homestead exemptions. Do not confuse the residence homestead exemption with the over 65 benefit. Now to the questions:

1. My client wants to apply for a residence homestead exemption mid-year when their new house is completed. Why can’t they do this?

Remember, the appraised value was determined on January 1. Therefore, there is no completed home value against taking a tax exemption. This should benefit the homeowner because the tax value will typically be lower.

2. Does the selling homeowner have to remove the residence homestead exemption and move it to the new property?

No – the residence homestead exemption stays, and the homeowner simply applies for a new homestead exemption for the newly acquired property – if it does not already have such an exemption.

3. Can a new homeowner apply mid-year for a partial military disability exemption?

Section 11.22 creates an exemption for a partially Disabled Veteran. Section 11.42 does not allow for a partially disabled veteran application arising after January 1.

4. If a residence homestead exemption is already in place, when should a new homeowner apply?

In general, Section 11.43 provides that a new owner should apply for an exemption before May 1 of the first full year of ownership. After that first year, the exemption automatically continues until ineligibility. It is legally the duty of the taxpayer to let the appraisal district know this. Note that the amendments do allow the application for a partial year to also apply to the following year.

5. Should a new buyer be concerned about the Seller applying for a new homestead exemption on a property the Seller is acquiring?

No – the application by a seller for a new homestead exemption will not affect the existing one.

6. Will not the application for a new Residence homestead exemption by the Seller cause the existing residence homestead exemption to terminate?

No –the new legislation does not provide for this. The existing exemption will continue to year-end unless the qualification is lost. There is some language addressing exemptions that terminate during the year of acquisition, but it remains to be seen how this will be applied. Stay tuned for more on this. Section 26.1115 (b), as amended, simply provides an alternative calculation if “the exemptions terminate during the year in which the individual acquired the property, ….” Many tax offices are still sorting this one out and still may have outdated information on their websites. A call to the tax office would be the best source for information.

7. How long will the appraisal district take to approve a Buyer’s new residence homestead exemption?

This will vary by the appraisal district. The amendment does state that the exemption will be received “immediately on qualification for the exemption.” Based on section 11.42 it would appear the qualification date is either January 1 or the date of acquisition, and not approval. Still, there is no precedence or other guideline on this yet.

8. Why the caveat that the improvement must have qualified as a homestead on January 1?

Similar to the question and answer above, the value is determined as of January 1. This does not change. Thus, there is no appraised value to which the exemption may apply. It is difficult to imagine where a taxpayer would not benefit from this scenario – that is, a lower tax value for the year. One may imagine through an argument whether a nearly completed structure qualifies as a homestead.

As one can see, the Property Tax Code does not always provide a bright-line rule. Many situations are subject to interpretation, and tax offices may vary in their interpretation. In any particular scenario where there are questions, consult with a tax expert such as a tax attorney or accountant. A call to the tax office is also often beneficial, and many tax collectors have calculators on their websites that are very helpful. See, for example, Williamson County.

Thanks – I hope this helps! If you have any other questions, feel free to reach out to your Independence Title Business Development Rep.