How Much Can Property Taxes Increase in Texas?

In Texas, homestead property taxes can increase by a maximum of 10% per year on the assessed value. This cap protects primary residences from runaway appraisal increases, but it doesn't apply to all properties. Non-homestead properties under $5 million have a temporary 20% cap through 2026, while commercial properties over $5 million face no limits at all.

The 10% Homestead Cap: What It Means

Texas Tax Code Section 23.23 limits the annual increase in assessed value for qualified homestead properties to 10% plus the value of any new improvements. This cap takes effect on January 1st following the year you first qualify for the homestead exemption.

Here's how it works: if your home's assessed value was $300,000 last year, the appraisal district can raise it to a maximum of $330,000 this year (10% increase), even if the market value has soared to $400,000. The homestead cap creates a "capped value" that grows more slowly than market value in hot real estate markets.

What the Cap Doesn't Protect

The 10% cap only limits assessed value increases. It does not cap:

• Tax rate changes: Your city, county, or school district can raise tax rates at any time
• New construction: Adding a pool, garage, or finishing a basement adds full market value on top of your capped value
• Your actual tax bill: A 10% assessed value increase plus a 5% tax rate increase = roughly 15% higher taxes

Many Texas homeowners are surprised when their tax bill increases by more than 10% despite the cap. The culprit is usually rising tax rates from local jurisdictions funding schools, roads, and municipal services. Learn more about how to appeal property taxes in Texas if your assessment feels unfair.

The 20% Non-Homestead Cap (Pilot Program)

Starting in 2024, Texas introduced a first-of-its-kind pilot program capping assessed value increases for non-homestead properties valued under $5 million at 20% annually. This temporary program runs through the 2026 tax year and applies to:

• Second homes and vacation properties
• Rental properties (single-family, duplexes, apartments)
• Small commercial real estate (retail, offices, warehouses under $5M)
• Business-owned properties not eligible for homestead exemption

Before this program, non-homestead properties had no cap at all—appraisers could increase values by 30%, 50%, or even 100% in a single year if market data supported it. The 20% cap provides modest relief for landlords and small business owners, but it's still double the homestead cap and set to expire after 2026 unless the legislature extends it.

Who Doesn't Get the 20% Cap

Properties valued over $5 million—typically large apartment complexes, shopping centers, office towers, and industrial facilities—remain subject to unlimited annual increases. These properties can see assessed values jump 40%, 60%, or more in hot markets, making regular appeals critical for owners. For high-value commercial properties, working with a professional firm like AppealDesk often makes financial sense given the stakes involved.

How Market Value vs. Assessed Value Works

Understanding the difference between market value and assessed value is crucial for Texas property owners:

For example: your home's market value might be $500,000, but if you've owned it for 10 years with the homestead cap in place, your assessed value might only be $380,000. You pay taxes on the $380,000 figure, saving you thousands of dollars annually. This "hidden equity" is one of the biggest financial benefits of Texas's homestead cap system.

What Happens When You Sell or Refinance

The homestead cap follows you, not the property. When you sell your home, the new owner starts fresh at current market value—often paying dramatically higher taxes than you did. This creates a two-tier system where long-term homeowners enjoy capped values while recent buyers pay full freight.

Refinancing does not reset your cap. You can refinance your mortgage as many times as you want without affecting your assessed value or homestead exemption. The cap only resets when ownership actually transfers to a new person or entity.

How to Protect Yourself from Excess Increases

Even with the 10% cap in place, you're not powerless against unfair appraisals. Here's your action plan:

1. File Your Homestead Exemption

The 10% cap only applies if you have a qualified homestead exemption on file with your county appraisal district. If you haven't filed yet (or bought a new home in the past year), apply immediately. The exemption is free and reduces your assessed value by $100,000 for school taxes plus additional amounts for county and city taxes.

2. Review Your Appraisal Notice Every Year

Texas appraisal districts mail notices in April showing your new market value and assessed value. Check three things:

• Is your homestead exemption showing on the notice?
• Did they increase your assessed value by more than 10%?
• Does the market value reflect your property's actual condition?

If something looks wrong, you have until May 15th (or 30 days after your notice is mailed, whichever is later) to file an appeal. Missing this deadline means you're stuck with that value for the entire year. Need help? Read our guide on what evidence you need for a property tax appeal.

3. Appeal When the Market Value Is Inflated

Even though you pay taxes on the capped assessed value, challenging an inflated market value still matters. Here's why: every year, your assessed value tries to "catch up" to market value at 10% per year. If the appraisal district sets your market value artificially high today, you'll be playing catch-up for years.

For example, if your true market value is $400,000 but the district claims $500,000, your assessed value will keep climbing toward that inflated target. Winning an appeal to reduce market value from $500,000 to $400,000 saves you money for years into the future as your assessed value climbs at a slower rate.

4. Watch for Tax Rate Increases

Remember: the 10% cap doesn't protect you from tax rate hikes. Your school district, city, and county each set their own tax rates, and together these rates determine your total tax bill. In Texas, the combined tax rate typically ranges from 1.5% to 3.5% depending on your location.

Pay attention to local elections and bond proposals. School bonds, road improvements, and new municipal services often mean higher tax rates. While you can't appeal tax rates directly, you can vote on bonds and voice concerns at public hearings before rates are finalized.

Real-World Examples: How the Cap Saves Money

Example 1: Austin Homestead

Maria bought a home in Austin in 2015 for $350,000. By 2026, the market value has climbed to $800,000 due to Austin's explosive growth. Without the homestead cap, she'd be paying taxes on $800,000—roughly $24,000 per year at Austin's 3% effective tax rate.

Thanks to the 10% cap, her assessed value is only $556,000 (growing 10% per year from the original $350,000 base). Her actual tax bill: $16,680 instead of $24,000. The cap saves her $7,320 per year and will continue saving her money as long as she owns the home.

Example 2: Houston Rental Property

James owns a rental duplex in Houston valued at $420,000 in 2023. In 2024, comparable sales pushed the market value to $550,000—a 31% jump. Without any cap, James would have paid taxes on the full $550,000, increasing his annual tax bill by $3,640 (at Houston's 2.8% rate).

Under the new 20% non-homestead cap, his assessed value maxed out at $504,000 (20% increase), saving him approximately $1,288 in the first year. If the pilot program continues beyond 2026, these savings compound annually. Learn more about whether it's worth appealing property taxes for rental properties.

The Future of Texas Property Tax Caps

The 10% homestead cap has been Texas law since 1997 and enjoys strong political support—it's unlikely to disappear anytime soon. The 20% non-homestead cap, however, is a pilot program set to expire after 2026 unless the Texas Legislature votes to extend it.

Property tax reform remains a hot topic in Texas politics. Proposals floating around include:

• Making the 20% non-homestead cap permanent
• Lowering the homestead cap from 10% to 5%
• Expanding caps to cover tax rate increases, not just assessed values
• Increasing homestead exemptions to offset rising appraisals

Stay informed by following your local appraisal district's announcements and paying attention to state legislative sessions. Property tax changes require constitutional amendments in Texas, which means voters ultimately decide through ballot measures.

Frequently Asked Questions

Key Takeaways

• Texas homesteads have a 10% annual cap on assessed value increases—one of the best protections in the country
• Non-homestead properties under $5M get a temporary 20% cap through 2026; properties over $5M have no cap
• The cap doesn't protect against tax rate increases, new construction, or missing homestead exemptions
• Always file your homestead exemption and review your appraisal notice every April
• Appeal inflated market values even if you're paying on a capped assessed value—it affects your future taxes
• The cap resets when you sell, so new buyers pay taxes on full market value

Texas's property tax cap system provides meaningful protection for homeowners, but it's not a complete shield against rising tax bills. Staying informed, filing exemptions on time, and appealing when values are inflated are all essential strategies for keeping your property taxes under control.