The Ultimate Guide to Texas Real Estate Taxes

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By Clever Real Estate Updated October 22, 2021


Real estate property taxes can impact your monthly mortgage payment, or any gains on sale, but many home buyers or sellers forget to consider them when deciding whether to buy or sell. Everything you need to know about real estate taxes in Texas.

The Ultimate Guide to Texas Real Estate Taxes

Property taxes may not be glamorous, but when house hunting you should study them just as closely as your Pinterest dream board. Local property taxes could make one home you’re looking at cheaper than another. It’s common for property taxes to be amortized over the year and included in your monthly mortgage payment. Thus, higher property taxes lead to a higher mortgage payment.

For a seller, taxes charged on the sale can reduce their profit. You will want to get input from an accountant or tax professional on how to offset your gains from sale. While your local real estate agent can answer many questions, here is an overview of property taxes in Texas.

Will You Have to Pay Taxes When You Sell Your Home in Texas?

Many home sellers are worried that the profit on their sale could be subject to capital gains. Capital gains taxes are typically applied to the amount of money realized between what you paid for an asset and what it sells for, i.e. your profit. But you can relax, because unless you made gains above $250,000 for a single person or $500,000, you’ll be exempt from capital gains taxes.

In addition to the profit limit to qualify for exemption, you must have been living in the home for at least two years when you sell it. You also must have been the owner during this time. Real estate investors are subject to capital gains taxes when selling a non-owner-occupied investment property. During those two-years of residency, you also can’t have been excluding the gains on sale from another home from your taxes.

Texas does not have a state income tax, so you do not have to worry about paying capital gains on your home sale.

How Much Are Real Estate Transfer Taxes in Texas (and Who Pays Them)?

When a home is sold, the state, county, or municipality may levy a real estate transfer tax, sometimes called a stamp tax. The tax is calculated off the home’s purchase price. Who pays the tax, buyer or seller, varies by state.

There are no real estate transfer taxes charged in Texas, in fact in 2017 voters shot down a proposition to add them to home sales.

How to Calculate Property Taxes in Texas

In Texas, property taxes are determined based on your homes’ assessed value. Depending on your municipality, you could also have to pay special levies for the schools or fire department. Statewide, the effective property tax is 1.86 %, the sixth highest rate in the country.

In Travis County, your property taxes on a $250,000 home would be $4,933, while in Harris County you’d pay $5,648. Because property taxes vary between counties, you could pay more in taxes for the same house in a different area. This is something to keep in mind when house hunting.

The county appraisal district sets your property’s value on January 1st of each year, based on who owns the property and market conditions. You can appeal and set a hearing with the appraisal review board, otherwise your taxes are not due until October that year.

Property taxes, and potential property tax increase, can impact the overall cost of your new home. Before deciding on a house, discuss property taxes in your target area with your agent.

Tax Breaks for Texan Home Buyers & Sellers

There are some tax breaks that you should know about if you’re buying or selling a home in Texas.

Tax Breaks and Credits for Buyers

If you’re buying a home, look into some of the tax breaks and credits available from both the state and federal government.

The Texas Department of Housing and Community Affairs or TDHCA will give first-time buyers a Mortgage Credit Certificate or MCC when they buy a home with a My First Texas Home mortgage. A MCC allows you to deduct up to 50% of your mortgage interest per year, based on the home’s purchase price. The total deduction is limited to $2,000, however.

The federal government no longer offers first-time home buyers tax credits, but your mortgage interest is deductible. After the government lowered the principal limit in 2018 homeowners can only deduct the interest paid on mortgages with a total principal of less than $750,000, or $375,000 for couples married but filing separately.

Tax Breaks and Write-Offs for Sellers

If you’re selling a home, learn about your tax breaks and write-offs before you begin the process. You might need to keep receipts and documentation of work done before you sell the home to support write-offs.

If you must fix a leaking roof, repair a gutter, or spend thousands of dollars to get your home ready to sell, keep records. These repairs could net you a tax deduction if they’re related to the sale. If the buyer requests repairs after the home inspection, get it in writing so you have proof for the IRS.

Any required maintenance to keep the home functioning is a repair, and is immediately deductible. Any work done to increase the property’s value is an improvement per the tax code, and its deduction has to be spread out over a few years.

You will also still be able to take a mortgage interest deduction for the months of the year during which you still owned the home. Your previous lender should send you the tax form.

Think back to when you bought the house, too. If you paid any interest up front, you should have been deducting those points on your taxes. But if they haven’t taken the full deduction at the time of sale, the remaining lump sum can be deducted in the year you sell your house.

The Tax Cuts and Jobs Act changed the moving costs deduction. They are now only deductible for military personnel, so if you are relocating for a new job you will not get a tax break.

While it’s highly unlikely that you will make your buying or selling decision solely on the basis of property taxes, they should be part of your decision process. A certified tax professional or accountant can advise you on how to minimize your tax exposure and maximize your savings if you’re buying or selling a home.

If you have decided to go ahead and buy or sell a home in Texas, talk to a local real estate agent. Clever Partner Agents join our network from nationally recognized brands, and are top-rated selling or buying agents in your area. They’ll support your success in the Texan housing market.

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