Optional Tax Limitation
Some Taxing Units May Limit Certain Homeowners’ Taxes
Effective January 1, 2004, a new state law allows a county, city or junior college district to limit taxes for homeowners who are either disabled or age 65 or older. The governing body of the taxing unit may adopt the limitation, commonly called tax ceiling. Or, citizens in the taxing unit by petition and election may adopt the limitation.
House Bill (H.B.) 136 adds Tax Code Section 11.261 to provide for the tax ceiling for disabled and age 65 or older homeowners and for their right to transfer to another homestead in that taxing unit the same benefit of that tax ceiling. H.B. 136 also provides for their surviving spouses age 55 or older to retain their tax ceiling and to transfer the benefit of that ceiling to a different qualified homestead in that taxing unit.
This gives these homeowners and their surviving spouses age 55 or older the same rights currently available to them for their school taxes. It differs from their school taxes in that the transfer to another homestead has to be in the taxing unit in which the homeowner established that limitation.
Setting tax ceiling
The law change starts with tax year 2004 forward, depending if and when the governing body (or its voters by election) adopts the limitation. There is no refund of any taxes for prior tax years.
For example, if the county adopts the limitation for tax year 2004, then the homeowner must first qualify as disabled or age 65 or older during 2004. The amount of the 2004 county taxes will set the homeowner’s tax ceiling amount. Future county taxes on that homestead could not exceed the 2004 tax amount (but may be less).
The tax limitation, however, may be adjusted higher for an increase in improvements to the homestead, other than repairs and those improvements made to comply with governmental regulations.
If the taxing unit’s governing body doesn’t adopt this provision until 2005, then the limitation is based on 2005 taxes. If adopted in 2006, the limitation is based on 2006 taxes.
Tax Code Section 11.13(h) provides that an eligible disabled homeowner who is 65 or older may not receive both a disabled and elderly exemption but may choose one.
The county, city or junior college district’s governing body adopts the limitation by official action. The law does not provide a deadline for action. Since the law is not effective until January 1, 2004, the governing body should act after that date.
As an alternative, at least 5 percent of the registered voters of the taxing unit may sign and submit a petition to call for an election to determine whether to establish a tax limitation. A majority vote by the voters at the called election determines if the tax limitation is adopted.
Once a taxing unit grants the limitation, it may not repeal or rescind the limitation.
This new law is unclear about whether or not a county, city or junior college district must first offer the optional homestead exemption before it may apply the limitation, and is therefore subject to interpretation. The optional homestead exemption for disabled or age 65 or older homeowners has a minimum of $3,000 from the home’s appraised value but has no maximum exemption amount.
Taxing units should consult with their attorneys about the optional limitation if they do not offer the exemption.
Porting tax ceiling
To transfer the limitation to a subsequently qualified homestead in the same taxing unit, the homeowner must qualify the former homestead for a tax year beginning on or after adoption of the limitation by the taxing unit. Then, the homeowner may transfer the tax limitation to another homestead within that taxing unit.
Transferring the homeowner’s tax ceiling to a different home gives the same tax benefit to the homeowner, not the same tax ceiling. A tax ceiling on a new home would be calculated to give the homeowner the same percentage of tax paid as the original home’s tax ceiling for that taxing unit. The tax benefits, therefore, may vary for each type of taxing unit – county, city or junior college, if all units granted the limitation. The limitation also may vary from the school tax ceiling.
For example, a qualified homeowner had a city tax ceiling of $700 but would pay $1,000 without a city tax ceiling on the homestead. The percentage paid by the homeowner was 70 percent ($700 divided by $1,000, times 100). If the homeowner moved to a new home in that city, the owner will pay 70 percent of the city tax bill on the new home. If the new home’s city taxes were $1,500, then the owner would have a tax ceiling of $1,050 ($1,500 times 70 percent).
H.B. 136 includes language about a transfer certificate. To transfer the tax ceiling, the qualified homeowner requests a certificate from the chief appraiser. When the owner applies for homestead exemptions on the new home, the homeowner presents the transfer certificate to the chief appraiser in the district where the new home is located for that same taxing unit.
In almost all cases, this will be the same appraisal district for both the former and new homes. So, the transfer certificate will mainly be for the homeowner’s records and as an internal document for the appraisal district to track the transfer.
In a few instances, a taxing unit may be in two or more appraisal districts. The homeowner will need a transfer certificate to take to the other appraisal district.
Remember that Tax Code Section 11.13(h) states that a person may not receive an exemption for more than one residence homestead in the same year.
The Comptroller's Property Tax Division has prepared a model form for this certificate. The Comptroller’s prescribed Form 50-311 is similar to the school form.
For more information about this certificate, contact the Comptroller’s Property Tax Division, Technical Assistance, by e-mail at email@example.com or by calling 1-800-252-9121. In Austin, call 512/305-9999. It is available on the Web at www.window.state.tx.us/taxinfo/taxforms/02-forms.html.