Photo by Gabriel C. Pérez/KUT
Friday, June 11, 2021 by Audrey McGlinchy, KUT

Austin raises property tax exemption for homeowners to highest rate allowed

As the median price of a home in Austin surpassed half a million dollars this year, City Council members voted Thursday to tax a smaller amount of owners’ home values.

City leaders doubled the current general homestead exemption of 10 percent, taking it to 20 percent, the highest amount permitted by Texas law. That means homeowners will not have to pay property taxes on one-fifth of the value of their primary home.

The entire 11-member Council voted in favor of the increase.

City staffers estimate the owner of a home valued at $400,000 will save about $141 a year on the city portion of their property taxes. The savings could change, though. City leaders will decide later this summer whether to raise property tax revenue and by how much.

Last week Council members approved an increase to the amount seniors and the disabled can exclude from property taxes from $88,000 to $113,000.

As they have in past discussions of changes to homestead exemptions, Council members reiterated that the tax relief will be felt most by people who own more expensive homes.

This fact gave Council Member Greg Casar pause, although he ended up voting in favor of raising the homestead exemption.

“The folks that are struggling the most that are homeowners get the least relief,” he said at a meeting last week.

Council members gave preliminary approval to the relief on June 3. Casar asked that they hold off final approval so Council could pass the increase alongside a vote on additional rent assistance, since non-homeowners won’t get the tax break a homestead exemption provides.

“The homestead exemption is about a $25 million shift in taxes off of homeowners, and so I would want to see if we could get $20-$25 million in additional tenant assistance,” he said last week.

Council members approved $20 million in tenant assistance to supplement millions the city has already made available to renters affected by the pandemic.

State law requires that general homestead exemptions, as opposed to exemptions for specific populations such as seniors, be expressed as percentages. For example, the owner of a home valued at $200,000 will be able to exclude $40,000 from the amount they are taxed on, while the owner of a home worth $1 million will get to exclude $200,000 from taxes.

Until now, City Council has been reluctant to raise the homestead exemption to the highest allowed by law. In 2016, Council members raised it from 6 percent to 8 percent.

Those who voted against it did so, in part, because it meant a hit to Austin’s coffers. By making a portion of someone’s home value exempt from taxes, the city collects less revenue.

“That means cutting something, somewhere,” then-Council Member Delia Garza told her colleagues. “And I just hope we all understand the position we’re putting ourselves in.”

Despite having the same concerns two years later, Council members again raised the homestead exemption, this time to 10 percent.

But according to city staffers, the Texas comptroller recently began reinterpreting state law and how taxing entities should calculate exemptions. Now, raising Austin’s homestead exemption no longer means the city will collect fewer property taxes; instead it can collect the same amount by raising the rate at which values are taxed, meaning commercial owners and those with secondary residences will foot more of the total bill.

“The burden … will fall to higher-income owners and users of the large buildings that we have downtown and industrial properties and the like,” Mayor Steve Adler said during a meeting last week.

Adler also acknowledged this could have an impact on renters, whose landlords may see their property taxes go up as a result. He framed this effect as amounting to no more than a couple dollars a month, and argued at a meeting last week that landlords are more responsive to the market – or what people are willing to pay for rent – than their property tax bills.

“If a landlord can charge $1,425 or $1,450 in the market, they would already be doing that,” he said. (The average monthly rent in Austin hit $1,335 in April, marking a steady increase in prices since a pandemic-related dip.)

All totaled, Adler noted that increasing the city’s general homestead exemption was not a panacea to Austin’s affordability problems.

“There are some people that are not getting the benefit … but on balance I think this is providing really important relief to people that need that relief,” he said.

This story was produced as part of the Austin Monitor’s reporting partnership with KUT.

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Key Players & Topics In This Article

Austin City Council: The Austin City Council is the body with legislative purview over the City of Austin. It offers policy direction, while the office of the City Manager implements administrative actions based on those policies. Until 2012, the body contained seven members, including the city's Mayor, all elected at-large. In 2012, City of Austin residents voted to change that system and now 10 members of the Council are elected based on geographic districts. The Mayor continues to be elected at-large.

Homestead Exemption: A reduction on a home’s taxable value in order to protect the home’s value.

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