Texas Property Tax Reform: Implications for Commercial Landlords

Description: Learn about the recent Texas property tax reform and its implications for commercial landlords. Discover how the bill addresses rate reductions, appraisal caps, and pilot programs, and understand the potential savings and changes for property owners.

Introduction: Texas Republicans have reached a consensus on property tax reform after months of negotiation. This article explores the key aspects of the newly agreed-upon bill and its significance for commercial landlords. Governor Greg Abbott, Lieutenant Governor Dan Patrick, and House Speaker Dade Phelan each achieved their policy priorities, resulting in a comprehensive plan with benefits for various stakeholders.

Rate Reductions and Savings: Under the property tax relief plan proposed by Governor Abbott, a significant portion of the allocated $17.6 billion will be used to reduce school district property tax rates. This rate-buydown process involves school districts cutting their maintenance and operations (M&O) taxes while receiving direct funding from the state to compensate for the lost revenue. Commercial property owners, alongside homeowners, will experience substantial savings as the M&O rate is reduced by 11 cents per $100 of property value. According to property tax consultant Tony Trahan, landlords, developers, and investors could potentially save up to $25,000 in property taxes for a $10 million commercial property.

Pilot Program and Appraisal Caps: The property tax bill introduces a pilot program known as the “circuit breaker.” Initially applicable to non-homestead properties valued at $5 million or less, this program aims to limit annual increases in appraised values to a maximum of 20 percent. While the pilot program’s impact may be limited initially, it indicates the possibility of broader property tax caps in the future. Data from KE Andrews reveals significant valuation increases for multifamily buildings in Dallas County, emphasizing the need for measures to address escalating property values.

Additional Changes for Commercial Owners: The approved bill includes a few noteworthy changes for commercial property owners. Small businesses will benefit from a reduction in the franchise tax, lightening their financial burden. Moreover, the introduction of new elected positions in appraisal boards aims to counterbalance the influence of certain local officials whose appraisals have been questioned by landlords and lawyers, citing vagueness and lack of foundation.

Voter Approval and Future Implications: Upon Governor Abbott’s endorsement, the property tax reform plan will be presented to voters for approval during the November ballots. This step ensures that the proposed changes align with public sentiment and fosters transparency in the decision-making process.

Conclusion: The Texas property tax bill represents a significant development for commercial landlords. The combination of rate reductions, pilot programs, and additional changes reflects a comprehensive approach to address property tax concerns. As the bill progresses towards implementation, commercial property owners should stay informed about the potential benefits and implications it may have on their investments.

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