Flat-Dollar Homestead Exemption Benefits Homeowners and Municipalities

Dick Lavine, Senior Fiscal Analyst at the Center for Public Policy Priorities

In Texas, school districts grant residential homeowners a flat-dollar-amount homestead exemption of $15,000, but local governments are currently prohibited from doing the same. While they can offer percentage exemptions, the ability to offer flat-dollar-amount homestead exemptions would benefit both homeowners and local taxing entities. At present, more than 800 Texas cities, and more than half of the 254 Texas counties do not grant a general homestead exemption.

SB 279 and SJR 20 by Senator Kirk Watson, which passed the Senate on May 5, would create an option for a flat-dollar-amount homestead exemption for cities, counties, and special districts that had not already granted a percentage exemption. The flat-dollar exemption would take effect unless the local governing body elected not to adopt it.

A flat-dollar exemption spreads the benefits more evenly among homeowners of all income levels by giving every homeowner the same reduction in tax liability. In contrast, a percentage exemption gives the greatest tax break to the highest value homes. According to the Comptroller’s Tax Exemptions & Incidence study, 55 percent of the benefit of a percentage exemption goes to the top one-fifth of households according to income.

For instance, a $50,000 exemption in a city, county, or special district with a tax rate of 50 cents per $100 of property value would reduce the tax bill of each homeowner by $250. A 20 percent exemption is equivalent to a $20,000 exemption for a $100,000 home, but a $200,000 exemption for a $1 million home.

If a homeowner lives in a district that currently grants a percentage exemption and a taxing unit chose to replace that exemption with a flat-dollar-amount that was less than the exemption that homeowner was currently receiving, the homeowner could chose to maintain the current exemption.

A flat-dollar-amount exemption would make it easier for local government to offer exemptions to homeowners by increasing predictability and stability of property tax revenue. The cost of a flat-dollar-amount exemption grows only with an increase in the number of homes. In contrast, the tax revenue lost to a percentage exemption also grows as local home values increase, making it a risky proposition for many cities and counties.

Many cities and counties do not currently grant a general homestead exemption, although many of these do offer exemptions for homeowners age 65 or over and disabled persons.

The largest cities and counties not offering a homestead exemption are:

No General Homestead Exemption- CitiesNo General Homestead Exemption- Counties
San AntonioTarrant County
LaredoBexar County
LubbockHidalgo County
AmarilloDenton County
BrownsvilleMontgomery County
FriscoWilliamson County
McAllenCameron County
MidlandBell County
Round RockLubbock County
The WoodlandsWebb County
Wichita FallsSmith County
College StationBrazos County
San AngeloWichita County
LongviewRandall County
BryanParker County
HarlingenPotter County
ConroeKaufman County

Passage of SB 279/SJR 20 or similar legislation, including HB 490/HJR 57 by Representative Eddie Rodriguez, could reduce the property tax bills of a significant number of Texas homeowners.

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