Greg Abbott Signs Historic Property Tax Cut Bill, Now Voters Must Approve Homestead Exemption Increase

Texas Gov. Greg Abbott signed a historic property tax cut package that could put an estimated $1,300 back into millions of Texas property owners pockets.

Texas Gov. Greg Abbott speaks during a news conference in Austin, Texas, on March 15, 2023. Brandon Bell/Getty Images

Gov. Greg Abbott has inked a historic $18 omnibus property tax cut bill that promises to deliver savings to millions of property owners across the Lonestar state.

On July 22, Mr. Abbott quietly signed the property tax cuts bill and franchise tax relief bill, Senate Bill 2 (pdf) and Senate Bill 3 (pdf), respectively, which were passed earlier this month during the second special session called by the governor.

“Working together with the Texas Legislature, we delivered a historic $18 BILLION in property tax cuts for hardworking Texans. I was proud to sign into law the largest property tax cut in the history of Texas,” the Republican governor wrote on Twitter Friday morning.

Much of the savings for property owners will come from lowering the maximum compressed school district tax rate and increasing the state’s homestead exemption from $40,000 to $100,000.

But before anyone starts calculating their savings, voters must first approve House Joint Resolution 2, a constitutional amendment, to raise the homestead exemption. (HJR 2)

Voters are expected to pass the amendment when they head to the polls in November. Last year, Texans overwhelmingly approved a homestead exemption increase from $25,000 to $40,000.

The average Texas homeowner would see an annual savings of about $1,300 if voters approve the higher exemption. Currently, a home valued at $350,000 is taxed at $310,000. With a homestead exemption of $100,000, the same house would be taxed at $250,000.

If voters approve, the homestead exemption increase would take effect on this year’s property tax bill.

What else is in the package?

Raising the homestead exemption is one component of the property tax package, which accounts for about $5.6 billion of the package.

The package also places a temporary 20 percent appraisal cap for residential, commercial, and mineral properties that do not have a homestead exemption. Basically, the county appraisal districts would not be allowed to increase the taxable value of a property by more than 20 percent a year.

“This was one of the major sticking points between the chambers, as Lt. Gov. Dab Patrick held that such caps may be allowing taxing entities to raise rates in a way that they cannot under revenue growth limits passed in Austin in 2019,” the Senate wrote in a news release after passing the legislation earlier this month.

“Ultimately, the chambers agreed on a 20 percent appraisal growth cap for all real properties with a valuation of no more than $5 million. Homeowners would still be under the 10 percent cap for homesteads.”

The provision is set to expire in 2026, allowing lawmakers and voters to determine the impact before they determine whether or not to extend it.

School tax compression is another part of the deal and accounts for $7.1 billion of the package. The state will send the money to school districts, allowing them to lower their maintenance and operations (M&O) property tax rate by 10.7 cents per $100 of the property’s valuation. The M&O tax, which is the largest portion of most property tax owners’ bills, helps cover teacher salaries and building maintenance.

Another part of the legislation will double the amount of money a business can make before it is required to pay state franchise taxes. While it is not a property tax cut, it does offer tax relief to businesses. The new will increase from $1.24 million to $2.47 million.

The new legislation will also include three elected positions on each county appraisal district’s board of directors in counties with a population of 75,000 or more. Currently, board positions are appointed. Lawmakers say this will provide more accountability for those who oversee property appraisals.

Battle of the chambers

Mr. Abbott had promised Texans that during the 88th Legislature, lawmakers would deliver the biggest property tax cuts in the state’s history thanks to the state’s record $32 billion surplus.

It was a top priority for many lawmakers, including Lt. Gov. Dan Patrick, despite the public battle that played out between the Senate and House over how to provide the greatest benefit to property owners.

On July 10, the Senate and House announced in a joint statement their agreement on property tax cut legislation, ending a monthlong stalemate between the chambers.

Lt. Gov. Dan Patrick, who presides over the Senate, insisted on a tax cut plan that combined a homestead exemption and school district tax rate compression.

“It has been a long road, but it has been a great day for all property owners. Speaker Phelana and I worked diligently over the last week on the final bill. It made the difference,” Mr. Patrick, who presides over the Senate, said in a joint statement.

House Speaker Dade Phelan’s version, which had Mr. Abbott’s backing, was based on tax-rate compression.

“Reducing property taxes, providing relief to small business owners, and reforming our appraisal system will ensure economic growth and prosperity, and this agreement is a significant victory for all Texans,” Mr. Phelan said.