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How Proposition 4 Affects Property Taxes in Texas

Texas Proposition 4, known as the Property Tax Changes and State Education Funding Amendment, was presented to Texas voters as a constitutional amendment proposed by the legislature on November 7, 2023. It received overwhelming approval, with 83% of voters in favor.

The primary aspects of Proposition 4 were:

  • Raise the homestead tax exemption from $40,000 to $100,000;
  • Grant the state legislature the power to restrict yearly appraisal increases on non-homestead real estate.

In essence, Texas Proposition 4 is poised to notably influence property owners in the state:

  • Increased Homestead Exemption: This uplift in the homestead tax exemption to $100,000 is set to decrease the taxable value of primary residences, potentially reducing property tax bills for eligible homeowners.
  • Appraisal Increase Cap for Non-Homestead Properties: This provision allows the legislature to limit the annual increase in appraised values for non-homestead properties, potentially controlling or reducing property taxes for such properties.
  • Additional Eligibility Criteria for Appraisal Cap: The proposition allows for extra eligibility requirements for the appraisal cap, impacting who can benefit from it.
  • Reduced Property Taxes for Seniors or Disabled Homeowners: The amendment mandates a decrease in property tax limits for elderly or disabled homeowners, which could lead to lower property taxes for these groups.
  • Adjustments Following Exemption Changes: The legislature must modify tax caps to reflect any changes in school district homestead exemptions, ensuring benefits are passed on to the relevant groups.
  • Regulation of Appraisal Entities in Larger Counties: This could lead to changes in property appraisals in these areas, affecting property taxes.
  • Exclusion from State Tax Revenue Appropriations Limit: This exclusion may have wider fiscal effects but might not directly impact individual property owners.

Detailed Overview: Proposition 4 brought significant changes, such as enhancing the homestead tax exemption from $40,000 to $100,000, starting in the tax year commencing January 1, 2023. It also gave the legislature authority to set a cap on yearly appraisal growth for non-homestead real properties. This cap would consider either the property's recent market value or a maximum of 120% (or more) of its previous tax year’s appraised value. Additionally, the amendment permitted the legislature to define further criteria for this appraisal cap, effective from either the law's implementation or the start of the following year after property acquisition, whichever comes later, expiring on December 31, 2026.

Moreover, the amendment necessitated a reduction in property tax limits for senior or disabled homeowners with homesteads, calculated using a specific formula, starting in the 2023 tax year. In case of any adjustments in general school district homestead exemptions, the legislature is required to accordingly revise the tax caps for these homesteads. Proposition 4 also granted the legislature the authority to regulate appraisal entities in counties with populations over 75,000 and excluded ad valorem tax payments from the state's constitutional revenue cap.

Overall, Proposition 4 is mainly aimed at reducing property tax bills for many property owners, especially homeowners, and stabilizing property tax obligations for owners of non-homestead properties. The actual impact will vary based on individual circumstances like property value, exemption eligibility, and local tax rates.

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