Texas has no state income tax, and local governments fund themselves largely with property tax. For investors that makes property tax one of the biggest costs of owning a rental, and the number most likely to decide whether a deal works.
How the bill is built
- The appraisal district sets the value. Dallas Central Appraisal District, Tarrant Appraisal District, Collin Central Appraisal District and Denton Central Appraisal District value property in their counties each year.
- Several local governments set rates. The county, the city, the school district, the community college and other districts each levy a rate. Combined, they are often around 2% of value or more in the metroplex.
- No homestead exemption on a rental. A home you live in gets a homestead exemption and a 10% cap on yearly increases in taxable value. An investment property gets neither.
The 20% limit on non-homestead property
For the 2024, 2025 and 2026 tax years, Texas limits the yearly increase in taxable value of non-homestead real property worth $5 million or less to 20%, plus the value of new improvements. The owner must have held the property for a full calendar year, and the limit ends when the property is sold. A buyer is taxed on full market value the next year, so do not underwrite on the seller’s tax bill.
Protesting your value
If the appraisal district’s value is too high, you can protest it. The deadline is generally May 15 or 30 days after the appraisal notice is delivered, whichever is later. Recent purchase prices, repair estimates and comparable sales are the usual evidence, and many investors use a property tax consultant.
How it affects a loan
| Item | Monthly |
|---|---|
| Rent | $2,400 |
| Principal and interest | $1,450 |
| Property tax at 2.2% on $320,000 | $587 |
| Insurance | $250 |
| Total payment | $2,287 |
| DSCR | 1.05 |
Taxes alone can be a quarter of the payment, which is why we use full market value, not a homestead or capped figure, when we size a DSCR rental loan.
Common questions
No. The homestead exemption is only for a home you own and live in.
For 2024 to 2026, the taxable value of non-homestead property worth $5 million or less can rise no more than 20% a year after the first full year of ownership. It resets when the property is sold.
Yes. File with the appraisal district by the deadline on your notice, generally May 15 or 30 days after the notice, whichever is later.