Nov 2023 Senate Bill 2 ("Property Tax Relief Act")

Texas’ economy is booming, and property taxes are a towering concern amongst homeowners. The passage of Senate Bill 2 by voters in November 2023, took effect on January 1, 2024, and is the latest legislative response aimed at easing some of that burden, but yet many Texans are unsure how it will actually affect their cost of living. This article explores the multifaceted benefits and consequences of Senate Bill 2, while advancing the argument for the indispensability of professional property tax services.

Decoding Senate Bill 2: A Closer Look at Its Vision for Tax Relief

At its core, Senate Bill 2 reflects the concerted efforts of Texas legislators to deliver property tax reform to property owners. This historically-pivotal bill takes a stab at providing reductions in the financial burden that property taxes impose on the typical Texan family. These cuts are expected to furnish Texas homeowners with incrementally more cash in their wallets by late 2023. This is done In several ways.

1. A Change to the Homestead Exemption

Before SB2, property owners with a Homestead Exemption were guaranteed at minimum a $40,000 value deduction from their local ISD. What this means is that when a tax bill is calculated, the taxing jurisdiction removes $40,000 from the value of the home, then calculates the bill based on the remainder. With the passage of the bill, this changes to $100,000. Depending on the exact tax rate of the jurisdiction this change will result in about $900 in additional tax savings for most homeowners.

2. The "Circuit Breaker"

The second major feature of SB2 is called the ‘Circuit Breaker’ feature, but it’s really just a blanket appraisal cap. Any non-homestead property under $5 Million in market value (Homestead properties will retain their standard 10% cap, which is better) will benefit from a 20% increase cap on their taxable value, meaning even if your property is in an area where market values have tripled from one year to the next, your property’s taxable value can only increase by 20% for that year. This ‘Circuit Breaker’ appraisal cap is just a three year pilot program. Should it prove to be beneficial, it may be extended by later legislation.

3. Additional Key Points

• Additional State Aid for Certain Districts Impaced by Compression
  School districts that received an adjustment under Section 48.257(b) for the 2022-2023 school year are entitled to additional state aid. This aid is calculated based on the adjustment amount for the 2022-2023 school year, less the difference, if any, between certain entitlement amounts.
• Adjustment of State Comptroller’s biennial Revenue Estimate
  The Act necessitates an adjustment to the State Comptroller’s biennial revenue estimate to account for the increased state aid to school districts and the decreased tax revenue resulting from the increased homestead exemption. This adjustment is crucial to maintain the state’s fiscal responsibility while implementing tax relief measures.
• Enhanced Oversight of School District Financial Management
  The Act introduces measures for enhanced oversight of school district financial management. This includes provisions for more stringent financial accountability, which aim to ensure that the savings from tax rate compression are effectively managed and utilized within the school districts.
• Limitation of Tax Increases for Seniors and Disabled Individuals
  The Act amends the Tax Code to ensure that a school district cannot increase the total annual amount of ad valorem tax it imposes on the residence homestead of an individual 65 years or older, or a disabled individual, above the amount imposed in the first tax year in which the individual qualified for the applicable exemption. This is a significant measure to protect these groups from sudden increases in property taxes​.
• Implementation Timeline and Transitional Rules
  The document outlines a detailed implementation timeline and transitional rules for the application of the new tax rates and exemptions. This includes specific dates and procedural guidelines to ensure that taxpayers and school districts can adequately prepare for and adapt to the changes.

Our Outlook on SB2

Overall, the homestead exemption detail will be a huge, immediate, and unmitigated help for homeowners. This facet of the bill took place immediately upon implementation through the vote in November. In fact, many taxing jurisdictions sent out thor 2023 tax bills as though it had already passed the vote. The Circuit Breaker clause on the other hand seems less than clear and not completely thought out. There are too many unanswered questions about how it will work, how it will affect budgets both locally and statewide, and if it will create an inequity in values, particularly for properties in high market growth areas or those that teeter on the $5MM threshold. Additionally, due to the fact that all homeowners are already eligible for the Homestead Exemption 10% cap, this is probably redundant and will not benefit most people. The primary beneficiary will be owners of Commercial properties and large Real Estate Investment groups. Though it sounds good in theory, this type of function is used in other parts of the country and generally results in shifting tax burdens over time onto Single Family properties and homeowners, causing dramatically-reduced market traffic due to the prospect of a dramatically-increased tax bill upon buying a new home, and increasing home prices due to constricting supply. This makes it far less affordable for the first-time home buyer, or the young family trying to buy a larger house to fit more children.

The Unseen Details: Reading Between the Lines

To really understand Senate Bill 2, you need to take a close look at the specific details it contains. While we interpret much of it in a certain way, due to the lack of clarity in the actual legislation, county appraisal districts and tax assessor/collectors, the Comptroller’s Office, and property owners may all have different expectations of how it is to be put into practice. Because of this, there are likely to be many lawsuits to come that challenge the enforceability of parts of this law.

In summary, the passage of Senate Bill 2 represents significant relief for Texas homeowners in the face of rising home values and inflation, aiming to support the economic well-being of residents while also maintaining essential local government operations. However, the long-term implications of this tax reduction on local governments and the real estate market will be important to monitor.

Texas homeowners eager to decipher the intricacies of Senate Bill 2 and their implications on personal finances should seek expert tax advice without delay. Take charge now by reaching out calling your nearest RPTS office / emailing us at info@resolutepts.com for an evaluation and personalized strategies to confront these evolving economic times. Take an immediate step by scheduling a free consultation, and arm yourself with the knowledge and resources to thrive financially.