Property tax relief is hard to come by. It is not every day homeowners get a tax break, so in June, when Frisco’s city council announced its first-ever homestead exemption, there was reason for residents to feel good. Going into fiscal year 2018, the tax decrease for residents, in the form of a homestead exemption, will help homeowners save on property taxes by allowing them to exclude a portion of their home’s value from assessment. At the same time, the council also declared that property value assessments are expected to increase. The two are likely to offset each other or even result in a small property tax increase for 2018. The homestead exception will apply a 7.5 percent reduction on the property tax value when calculating the city property tax. As an example, a home with an assessed value of $100,000 would only realize a value of 0.45 percent (4.50 dollars per $1,000) resulting in a city tax of $416.25 versus $450 without the exemption.
While homestead exemptions are common in most states, it is up to each city council to vote for their specific homestead exemption percentage. The exemptions can range from 1-20 percent. Not all cities offer this tax relief to their homeowners. In a June Dallas Morning News article, Mayor Jeff Cheney said Frisco has “been a victim of its own success.”
Bryan Gutierrez, a practice manager at Kronos Inc., and his wife, Kate, along with their 8-month-old daughter Ava, live in Frisco and say they moved here because home values were very attractive when comparing them to comps and square footage with other homes in the Dallas/Fort Worth area. “We moved to Frisco when we purchased our home back in August 2013. Originally, when we purchased our home, both my wife and I were working and were a dual-income family. Frisco made not only geographical sense, but also financial sense for us to reside,” says Mr. Gutierrez. “With the birth of Ava and a fortunate professional promotion, it has allowed my wife to remain at home with our daughter while becoming a single income family. The home values in Frisco are fairly priced and have allowed us to have the option of being homeowners while being a single-income family.”
Mr. Gutierrez adds, “On the other end of this, Frisco property values are rising exponentially, which, in turn, has caused the taxes to skyrocket in proportion. With the finish-out of large corporations that will be located along the Dallas North Tollway and the State Highway 121 quadrant in Frisco, the area is sure to continue to be one of the hottest spots to relocate in the country. Again, with that comes increased demand which will again push the property values higher and continue to keep taxes on the rise. One concern my wife and I do have is with the taxes continuing to rise, we have to keep a close watch on the budget. We must adjust accordingly as, each year, taxes continue to increase, causing our escrow to do the same. Our property value has increased 47 percent between its appraised value today and closing in 2013.”
If the word “homestead” sounds distinctly western, that is because it is. A homestead, simply put, is a family home or dwelling with land and buildings that a family makes its home. We have Stephen F. Austin, the Father of Texas, to partly thank for the Homestead Exemption. Early Texas settlers in the nineteenth century were being pursued by creditors. As a form of protection, Mr. Austin recommended a moratorium on settlers’ outstanding debts. The Texas Act of 1839 was the first type of act that protected the home of a family from a seizure by a creditor.
Today, a homestead exemption means the amount of taxes owed is calculated based on the difference between the home’s value and the exemption amount. The homestead exemption only applies to primary residences, which means rental properties or vacation homes do not qualify.
Texas law requires that all property appraisals be fair and uniform. Rather than trying to raise taxes on all Frisco homeowners, the city council has chosen to limit further tax increases on a majority of its population. It is questionable, though, how much “tax relief,” if any, this will actually provide. In the homestead tax exemption press release that was recently sent out, it is projected that home values are estimated to increase by 9 percent next year. Extending the previous example of a once $100,000 home now assessed of $109,000, the 7.5 percent discount results in a realized value of $100,825. Therefore, the property taxes with the new homeowner’s exemption would be $453.71, slightly more than the current $450. It would have been necessary for the town council to pass a 9 percent homestead exemption to keep property taxes steady, given their preliminary expectation of a 9 percent increase in property values.
The city council has reserved the right to raise or lower the homestead exemption each fiscal year. According to Anita Cothran, the director of financial services for the City of Frisco, the council carefully considered the impact to the city budget and the best start for homeowners to provide tax relief and will be reviewing the exemption each year going forward. “Each city council votes for their specific homestead exemption percentage. The exemptions can range from 1-20 percent,” she says.
New homeowners and/or homeowners new to Texas should be aware that it is necessary to apply for a homestead exemption with Collin or Denton County. They also offer similar homestead exemptions to reduce taxes on one’s primary residence. Frisco requires that you own and occupy the property on January 1 and neither spouse may have claim to a homestead exemption on any other property. New applicants have until January 31, 2019, to file for the exemption. Homeowners who have “homestead” status with their school district will automatically receive the benefits.
“We are very excited to hear about the homestead exemption that will be effective for fiscal year 2018, as it will provide some immediate relief for one of the concerns we have been monitoring the last few years. While the taxes and rates would not jeopardize us to lose our home, the break still allows us to pump our flex spending dollars back into the city through other means and allows us to allocate the money towards needs for our family,” says Mr. Gutierrez. “This is very exciting news and we feel we are part of the target market the city’s exemption was aimed towards benefiting in order to continue to keep Frisco one of the best cities within the Dallas/Fort Worth metropolitan area.”
For more information, visit collincad.org, the Collin County Appraisal District’s website, or go to www.dentoncad.com if you are in Denton County.