The new Texas property tax laws passed under Senate Bill 2 in 2023 raised the school district homestead exemption from $40,000 to $100,000, sent billions in state money to buy down school tax rates, and created a temporary 20% cap on how much appraisal districts can increase the value of smaller non-homestead properties each year. For most homeowners, the two changes that matter on the tax bill are the bigger exemption and the lower school rate. Both apply automatically if you already have a homestead exemption on file.
The $100,000 School District Homestead Exemption
The first $100,000 of your home’s appraised value is now exempt from school district property taxes.1Texas Legislature Online. Texas Senate Bill 2 – Property Tax Relief Act A home appraised at $350,000 is taxed by the school district as if it were worth $250,000. The exemption only reduces the school district portion of your bill. City, county, and special district taxes are set separately, and those entities decide their own optional exemption amounts.
If you already had a homestead exemption on file when SB 2 took effect, the appraisal district increased it to $100,000 automatically. You did not need to reapply. If you have never filed, or if you recently bought or moved into a new primary residence, you need to submit Form 50-114 to the appraisal district in the county where the property sits.2Texas Comptroller of Public Accounts. Property Tax Exemptions The form asks for a Texas driver’s license or state ID with an address matching the property.3Texas Comptroller of Public Accounts. Form 50-114 – Residence Homestead Exemption Application If your ID still shows your old address, you can ask the chief appraiser to waive the matching requirement right on the application. Once approved, the exemption stays in place as long as the home remains your primary residence.
Extra Relief if You Are 65 or Older or Disabled
Texas freezes school district taxes on the homestead of any owner who is 65 or older or has a qualifying disability. That ceiling is the most you will ever pay in school district taxes on that home, and it does not rise with your appraised value.1Texas Legislature Online. Texas Senate Bill 2 – Property Tax Relief Act SB 2 lowered that ceiling. The law multiplied the $60,000 exemption increase by the applicable school district rate and subtracted the result from each existing ceiling, so owners who already had the freeze saw an immediate dollar-for-dollar cut in their maximum.4Texas Legislature Online. SB 2 – Committee Report (Unamended) Version – Bill Analysis
If you recently turned 65 or became eligible through a disability, file Form 50-114 with your appraisal district to activate the ceiling. Check your annual notice of appraised value to confirm the Over-65 or Disability status is listed. A surviving spouse who is 55 or older may be able to keep the frozen ceiling, and the appraisal district can confirm eligibility.
Lower School Tax Rates Through Compression
Separately from the exemption, SB 2 sent roughly $12.7 billion in state money to school districts so they could cut their maintenance and operations (M&O) tax rate by an additional 10.7 cents per $100 of taxable value.4Texas Legislature Online. SB 2 – Committee Report (Unamended) Version – Bill Analysis This is called tax rate compression. The state picks up a larger share of school funding so your district can charge you less without losing revenue.
The M&O rate pays for daily operations like teacher salaries and classroom supplies. It is separate from the interest and sinking (I&S) rate, which pays off bond debt. Compression only touches the M&O side. The compressed rate is recalculated each year based on statewide property value growth and available state revenue, so the exact number shifts annually. Local school boards do not have the option to ignore it. On your tax bill, compression shows up as a lower school district rate, and combined with the higher exemption it produces most of the savings homeowners are seeing. The city, county, and special district portions are unaffected.
The 20% Cap on Non-Homestead Properties
SB 2 also created a brand new appraisal cap for real property that does not have a homestead exemption. Under Texas Tax Code Section 23.231, the appraisal district cannot raise the appraised value of a qualifying property by more than 20% over the prior year.5State of Texas. Texas Tax Code 23-231 – Circuit Breaker Limitation on Appraised Value of Real Property Other Than Residence Homestead The formal name is the circuit breaker limitation. It covers smaller commercial buildings, rental homes, and apartment properties — essentially real property that is not your primary residence and is not already under special-use categories like agricultural or timber land.
To qualify, the property has to be appraised at $5 million or less in the first tax year it becomes eligible. The cap starts on January 1 of the tax year after the owner first owns the property on January 1, and it ends when the owner sells.5State of Texas. Texas Tax Code 23-231 – Circuit Breaker Limitation on Appraised Value of Real Property Other Than Residence Homestead
Two carve-outs matter. New improvements are added on top of the 20% cap. The statute defines a new improvement as work done after the most recent appraisal that increases market value, so adding a second story counts, while replacing a worn-out roof with an equivalent roof is maintenance and does not. The 20% limit also cannot push appraised value above actual market value. It only prevents the appraisal from jumping there in one leap.
This cap is a pilot. It expires December 31, 2026 unless the legislature extends it, which makes the 2026 tax year the last one it applies under current law.5State of Texas. Texas Tax Code 23-231 – Circuit Breaker Limitation on Appraised Value of Real Property Other Than Residence Homestead Owners who are counting on this cap for rental or commercial property should pay close attention to the 2027 session, because without an extension appraisal districts could catch values up to full market value in a single year.
Protesting Your Appraisal
Every exemption and cap starts from one number: the appraised value the district puts on your property. If that number is wrong, the rest of the math is wrong too. Texas gives you the right to protest it each year with the appraisal review board (ARB).
The deadline is May 15 or 30 days after the appraisal district mails your notice of appraised value, whichever is later.6Texas Comptroller of Public Accounts. Appraisal Protests and Appeals File Form 50-132 with the ARB, which is often in the same building as the appraisal district office but is a separate body. If you miss the regular deadline, the ARB can still accept a late protest for good cause, but only before it approves the year’s appraisal records.
You can appear in person, by phone or video, or by written affidavit with your evidence. In most cases the appraisal district has the burden of proving value.6Texas Comptroller of Public Accounts. Appraisal Protests and Appeals Comparable sales data, photos showing condition, and any independent appraisal you have are the most useful material to bring. The hearing is informal. You do not need a lawyer, though you can hire an agent to represent you by filing Form 50-162. If the ARB rules against you, you have three further routes: a petition in district court within 60 days of the written order, an appeal to the State Office of Administrative Hearings for properties above certain value thresholds, or regional binding arbitration through the Comptroller’s office within 60 days. Filing the ARB protest itself costs nothing, and for non-homestead property owners facing the expiration of the circuit breaker cap, it is one of the few remaining ways to push back on a steep increase.
How This Affects Your Federal Return
Lower Texas property taxes can change the math on your federal return. If you itemize, the state and local tax (SALT) deduction includes property tax you pay. For the 2026 tax year, SALT is capped at $40,400 for most filers and $20,200 for married filing separately.7Office of the Law Revision Counsel. 26 USC 164 – Taxes Many Texas homeowners were already under that cap. The combination of a lower school rate and a bigger exemption may now push your total itemized deductions below the standard deduction, in which case itemizing stops making sense and the federal benefit of writing off property taxes effectively disappears, even though you still pay them.
The homestead exemption does not touch federal capital gains when you sell. The IRS exclusion of up to $250,000 in gain for single filers and $500,000 for joint filers on the sale of a primary residence depends on ownership and use, not on any state exemption.8Internal Revenue Service. Sale of Your Home You qualify if you owned and used the home as your primary residence for at least two of the five years before the sale and have not claimed the exclusion on another home sale in the prior two years.