Market Value, Assessed Value & The Homestead Cap
When you receive your Notice of Appraised Value each year you will find a "Total Market Value" and an "Assessed Value." Below we explain the difference between these value definitions and how they affect your property taxes over time.
Total Market Value
The "Total Market Value" is the county's estimate of the the most probable price at which your property would sell in an arm's-length transaction on January 1st of the current tax year. The total market value of your property may change upwards or downwards any amount depending on the current market conditions.
The “Assessed Value” of your property is the value at which your home is actually taxed. If the property in question is your primary residence, the assessed value may be vastly different than the total market value if you have filed for a Homestead Exemption.
Homestead Cap Value
The Texas Property Tax Code allows for a Homestead Exemption on an individual's primary residence. A feature of this exemption is that the assessed value of your home cannot change in excess of 10% year over year. This limit to your assessed value is often referred to as the "Homestead Cap Value."
New Construction Tax Assessment
The assessment of first-year property taxes for new construction homes can be calculated based on either the sale price or what is known as the cost approach. The latter is a combination of the replacement value of the house and the value of the land. This can result in a lower appraisal. Keep in mind that the appraised value of your home can change from year to year.
Here's two examples of how a Homestead Exemption, in combination with regular annual Tax Protests, can protect your property tax from increasing at an accelerated pace.
In 2021, a homeowner purchased a primary residence for $350,000 which also had a total market value of $350,000 and an assessed value of $350,000.
In 2022, the subject’s total market value increased to $425,000 (+25%).
Because the owner filed for a Homestead Exemption, the assessed value was limited to the previous year’s assessed value of $350,000 plus 10% ($350,000 + 10% = $385,000).
In this example, the owner will pay taxes on $385,000 (the Homestead Cap Value) rather than $425,000 (The Total Market Value)
In 2022, a homeowner purchased a primary residence for $500,000, however, the market conditions caused prices to decline, but the appraisal district still estimated the total market value at $500,000 and the assessed value at $500,000.
The homeowner protested to have the value reduced, and was successful in achieving an total market value of $450,000.