No income tax, but property tax: the Texas Homestead Exemption

It is an exemption on the value of the home you live in. The state Comptroller puts it this way: Section 11.13(b) of the Tax Code requires school districts to grant a $140,000 exemption on your principal residence.

And the deadline: the general filing date is before May 1.

What that means in money depends on your school district's tax rate. At a typical rate, a $140,000 exemption easily means more than $1,500 less tax a year, and the saving repeats for as long as you live there.

On top of that come further exemptions that counties and cities can grant, plus additional ones for people over 65 and people with disabilities.

Besides the exemption, the application brings a cap, and over time that is often worth more than the exemption itself.

For a property recognized as your principal residence, the taxable value may only rise by a limited amount each year, however fast the market value climbs. In a market like Texas, where home values have jumped by double digits in some years, that is a serious brake.

Skip the application and you get neither the exemption nor the brake, and your taxable value follows the market straight up.

Because most people moving from Europe have never had to deal with anything like it at home.

In Texas, nothing happens automatically. The county appraisal district values your house, sends you a notice, and if you do nothing, you are taxed on that value. The exemption only exists if you apply for it.

There is a second catch: eligibility generally depends on your situation at the start of the year. If you buy in February, check carefully which rules apply to your first year, and when in doubt, file anyway.

The application doesn't go to the state or the city but to your county appraisal district. In Austin that's Travis County, in Houston Harris County, in Dallas Dallas County.

You will generally need a Texas driver's license or state ID showing exactly the address you are applying for. A mismatch here is the most common reason for rejection, and the reason your driver's license belongs in your first week after the move.

Filing is free. Some companies offer to file it for you for a fee. That's legal, and unnecessary.

The second lever, and almost no newcomer uses it. You can protest the appraised value, with its own deadline in the spring, and in Texas a great many owners do, every single year.

It isn't a fight or an insult, it's a well-oiled process. You present comparable values, you negotiate, and a compromise is often reached. There are services that handle it for a share of the savings.

For a mid-priced home, we're talking hundreds to thousands of dollars a year. Skip it for three years and you've given away more than your move cost.

This state funds itself differently from California or New York. It forgoes taxing income and raises its money through property and consumption.

Who does that suit? People with high incomes and moderate real estate. An entrepreneur who earns well and lives in an ordinary house pays far less here than in California.

Who does it hurt? People with low incomes and expensive homes. A retiree on a small pension whose house has doubled in value can end up in a position in Texas where property tax blows the budget. That's why there are special rules for people over 65.

So if you're moving to Texas, don't just look at the missing income tax: run the numbers on both sides. We've covered this in Texas as a US base and in Texas: The Lone Star State.

To give you a sense of scale: in many Texas communities, the combined rates of school district, county, city and special districts add up to roughly two percent of the appraised value.

For a house appraised at $500,000, that means an annual bill in the region of $10,000, or more than $800 a month, on top of your mortgage payments.

With the $140,000 school district exemption, the taxable base for that portion drops considerably, and depending on your community's other exemptions, there may be more on top.

So the sum to do before you buy isn't purchase price versus rent, it's purchase price plus property tax plus insurance versus rent. In Texas, property tax is the item that turns a cheap house into an expensive one.

And while we're doing the math: homeowners insurance in Texas is considerably more expensive than most Europeans are used to, because this state knows hail, storms, floods and, on the coast, hurricanes.

Flood damage is usually not covered by standard American policies and needs separate insurance. If you buy in a designated flood zone with a mortgage, you will generally have to prove you have that coverage.

So budget for three items, not one: mortgage payments, property tax, insurance. If you only count the first, you're in for a surprise in year two, when the bank adjusts the escrow for tax and insurance and your monthly payment suddenly rises by two hundred dollars.

After all those numbers, the other side, because otherwise the picture is skewed.

If you run a business here, you pay no state income tax, not even on business profits that reach you personally. The franchise tax has a no-tax-due threshold of $2,650,000 for the 2026 and 2027 report years, below which you simply owe nothing.

The labor market is deep, permits are fast, commercial space is affordable, and the authorities don't treat entrepreneurs as suspects. Coming from Europe, you notice the difference in your first week.

Property tax is the price for all this, and it's an honest price: visible, predictable, on the table every year. Unlike income tax, it doesn't punish success; it taxes ownership.

Whether that works for you depends on your balance sheet. For most entrepreneurial newcomers from Europe, the answer is a clear yes.

January 1: the reference date for the tax year. Who owns the house on this day and who lives in it determines the exemptions.

Spring: the appraisal district sends out the notice of appraised value. From that moment the protest deadline is running, and it's short.

Before May 1: apply for the homestead exemption.

Summer: school district, county and city set their tax rates. These meetings are public, and in Texas people actually show up.

October: the tax bill arrives.

January 31 of the following year: payment deadline. After that, penalties kick in, and they are painfully high.

Know these six dates and you have Texas property tax under control. Don't, and you'll pay a little more than you need to every year.

Everything here applies to owners. If you rent, you don't pay property tax, at least not directly. You pay it through your rent, because every landlord builds it in, and that's why Texas rents climb noticeably in years when valuations jump.

Even so, for newcomers, renting in the first year is almost always the right call. You don't know the area, you don't know the school districts, you don't know the commute, and you usually have no American credit history yet, without which financing gets expensive.

Rent for a year, build your credit score in that time, get to know the city, then buy: that's the path we recommend to clients, and it's the path that leads to the fewest expensive mistakes.

Texas has a bond with Europe that is older than most US states. In the 19th century, tens of thousands of Germans arrived in the hills west of Austin, founded towns, built churches and brought their language with them.

You rarely hear that language today, but you see it in the place names between San Antonio and Fredericksburg, in the names on the gravestones and in a beer culture nobody here finds exotic.

That's no reason to move to Texas. But it explains why Europeans often feel at home here faster than elsewhere in America, and why the word immigrant has a different ring here than on the coasts.

If you own a home in Texas, live in it yourself and haven't filed this application yet, do it today or tomorrow. It takes twenty minutes, it costs nothing, and it pays off every year you live there.

It's probably the best return on twenty minutes of work this state has to offer.

If you're planning your move to Texas or want to sort out your tax situation here, talk to Mount Bonnell Advisors in Austin. We're based here, we pay the same property tax, and we filed the same application.

Consultation & implementation

If you'd like to find out what this means for your own situation, the best step is to book a consultation.