Texas has no state income tax, and local governments fund themselves largely with property tax. For Houston investors that makes property tax one of the biggest costs of owning a rental, and the number most likely to decide whether a deal works.
How the bill is built
- The appraisal district sets the value. The Harris Central Appraisal District, Fort Bend Central Appraisal District, Montgomery Central Appraisal District and Brazoria Central Appraisal District value property in their counties each year.
- Several local governments set rates. The county, the city, the school district, the community college, the flood control district and other districts each levy a rate. Combined, they are often 2% to 2.5% of value in Harris County.
- No homestead exemption on a rental. A home you live in gets a homestead exemption and a 10% cap on yearly increases in taxable value. An investment property gets neither.
Municipal utility districts
Much of suburban Houston was built with municipal utility districts, which borrow to pay for water, sewer and drainage and repay the debt with their own property tax. In newer subdivisions in Katy, Cypress, Pearland and Conroe, the MUD rate can push the total above 3% of value. Check the MUD rate for the exact address; it is on the tax statement and the seller’s disclosure.
The 20% limit on non-homestead property
For the 2024, 2025 and 2026 tax years, Texas limits the yearly increase in taxable value of non-homestead real property worth $5 million or less to 20%, plus the value of new improvements. The owner must have held the property for a full calendar year, and the limit ends when the property is sold. A buyer is taxed on full market value the next year, so do not underwrite on the seller’s tax bill.
Protesting your value
If the appraisal district’s value is too high, you can protest it. The deadline is generally May 15 or 30 days after the appraisal notice is delivered, whichever is later. Recent purchase prices, repair estimates, flood damage and comparable sales are the usual evidence, and many investors use a property tax consultant.
How it affects a loan
| Item | Monthly |
|---|---|
| Rent | $2,300 |
| Principal and interest | $1,350 |
| Property tax at 2.4% on $300,000 | $600 |
| Insurance, including flood | $260 |
| Total payment | $2,210 |
| DSCR | 1.04 |
Taxes alone can be more than a quarter of the payment, which is why we use full market value, not a homestead or capped figure, when we size a DSCR rental loan.
Common questions
No. The homestead exemption is only for a home you own and live in.
A property tax levied by a municipal utility district to repay the cost of water, sewer and drainage in the subdivision. It is added to the county, city and school taxes.
Yes. File with the Harris Central Appraisal District by the deadline on your notice, generally May 15 or 30 days after the notice, whichever is later.