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Property Tax Breakdown

In Texas, property taxes are due at the end of each calendar year with taxing authorities only accepting payment from a single entity. Property tax bills are issued in October, annually, with the prior year’s taxes used as a potential guide for any estimations. Typically, property taxes are due by the last day of January, the following calendar year, before beginning to accrue penalties and/or interest.

In a real estate transaction, there are certain items on a CD which can be prorated. Some of these include HOA dues, city property taxes, school district property taxes, etc. Whether selling or buying, the property taxes can be prorated at closing. Essentially, this means the property tax bill can be divided so each party pays their own percentage of the year’s taxes, based on the date of closing. As an example, if a subject property closes on June 1, the seller is responsible for the year’s property taxes through June 1. The buyer will subsequently receive a credit for the amount the seller was responsible for through June 1. However, if the subject property closes after October 1, the taxes are already due and payable. As such, the taxes will be paid by the seller at closing. Additionally, the seller will receive credit for the time they no longer reside in the house. The buyer is debited that amount on the CD as a part of their closing costs.

A subject property’s tax bill is calculated by multiplying the assessed value (minus exemptions, which we will discuss in our next breakdown series in February) by the property tax rate. First, it’s important to know there are a few factors that will determine your subject property’s assessed value. The size of the property, the type and age of construction, as well as the location are all considered in assessment determination.  In addition, the classification of the subject property also affects the final assessment. The most common property classifications are residential, agricultural, commercial, and industrial with other options existing (vacant, etc.). The tax applied to your subject property is based on its classification. There is no uniformity in tax rates across classifications.

An appraisal, while comparable to an assessment in that both project value, differs because it is figuring the tangible value of your home; that is to say, the subject property’s current market value. A subject property appraisal is conducted by a state-licensed appraiser. As the current market value is directly impacted by the appraisal, the process is much more in-depth than the state’s assessment process. There are several factors that will determine your subject property’s appraised value, such as total square footage, structural improvements/renovations, number of bedrooms, foundation, etc. In addition, the appraisal process takes into consideration the value of comparable homes in a specified area/neighborhood.

It can be confusing understanding the difference as both processes are determining subject property value.  Essentially, the difference between an assessment and an appraisal comes down to how said value is determined, and for what purpose. The assessment process is used for the state to determine the relative value of your subject property for taxation. The appraisal process is used to determine the actual market value of your subject property (in preparation for sale, refinance, etc.).

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