Proposed Texas Bill HB 202 (2025)

Relating to making permanent the limitation on increases in the appraised value of certain real property for ad valorem tax purposes.

HB 202 is a proposed bill that seeks to make permanent the limitation on increases in the appraised value of certain real property for ad valorem tax purposes in Texas. This bill aims to provide predictability and stability for property owners by capping the annual increase in property appraisals, particularly in the context of property taxes.

Key Provisions of the Bill:

1. Permanent Cap on Appraised Value Increases:
   • The bill proposes to permanently extend or codify a limitation on how much the appraised value of certain real property can increase each year for the purpose of calculating ad valorem taxes (property taxes).
   • This cap is meant to protect property owners from significant annual increases in their property appraisals that could lead to higher taxes, particularly in areas with rapidly rising property values.
2. Current Temporary Cap:
   • Currently, there is a temporary cap in place that limits the increase in the appraised value of homesteads to 10% per year for tax purposes. This cap was designed to prevent homeowners from being overwhelmed by escalating property taxes as property values rise.
   • HB 202 would make this cap permanent for eligible properties, ensuring that this protection remains in place for the long term.
3. Eligibility:
   • The bill is likely to apply to homesteads (primary residences) and may extend to other types of real property, subject to specific provisions.
   • This measure would provide relief to homeowners and property owners who may otherwise face higher taxes due to rapidly increasing property values.
4. Stabilizing Property Taxes:
   • By capping the increase in property appraisals, the bill aims to create more predictable property tax ratesfor homeowners, making it easier for individuals and families to plan their finances without the threat of drastic increases in property taxes due to sudden jumps in property values.

Potential Benefits:

1. Protection Against Rising Taxes:
   • Homeowners will benefit from the predictability of their property tax bills, as they won’t face large, sudden increases due to significant jumps in appraised property values.
2. Housing Affordability:
   • The bill could help make homes more affordable for Texans, especially in high-growth areas where property values have been rising rapidly.
3. Increased Stability for Taxpayers:
   • Homeowners would have greater financial certainty, as the 10% cap prevents drastic increases in property taxes each year, ensuring that taxpayers are not burdened by rapidly escalating property costs.
4. Encouragement of Homeownership:
   • The bill could make homeownership more attractive by reducing uncertainty about future property tax liabilities, which may encourage individuals to invest in homes without fear of rapidly increasing tax rates.

Potential Drawbacks or Concerns:

1. Impact on Local Governments’ Revenue:
   • Capping property appraisals could limit the amount of property tax revenue available to local governments, which rely on this funding for public services such as education, emergency services, and infrastructure.
   • Local governments may face pressure to adjust other forms of taxation or cut services if the cap significantly reduces their property tax income.
2. Potential for Inequity:
   • Some critics may argue that the cap disproportionately benefits higher-value property owners or those in rapidly appreciating areas, while not necessarily addressing broader issues related to housing affordability across the state.
3. Market Distortions:
   • By limiting appraised value increases, the bill could distort the local real estate market, particularly in areas where property values are growing quickly. This could lead to situations where property values are not accurately reflected in tax assessments, potentially impacting future real estate transactions.
4. Challenges in Adjusting Local Budgets:
   • Local governments may find it difficult to adjust their budgets and maintain public services if they are unable to generate the necessary revenue from rising property taxes due to the cap. This could lead to budget shortfalls or the need to increase other taxes or fees.

Conclusion:

HB 202 seeks to make permanent a limitation on the annual increase in the appraised value of certain real properties for ad valorem tax purposes. The bill is designed to provide taxpayer protection from rising property taxes, particularly benefiting homeowners in high-growth areas by capping increases in their property assessments. While the bill offers significant benefits in terms of housing affordability and predictability, it could also face challenges related to local government revenue and potential market distortions.