8 ms·

Property taxes are _much_ higher in Texas than California, in fact Texas has one of the highest property taxes in the nation (because there's no income tax, and

Property taxes are _much_ higher in Texas than California, in fact Texas has one of the highest property taxes in the nation (because there's no income tax, and TX still needs to fund itself somehow; TX also has one of the highest sales taxes for this reason, too). You pay the same on property taxes for a $400k house in Texas as a $1M house in California. Not only that, CA has Prop 13: for better or worse, your property tax is essentially frozen in the year you buy your home in CA. In TX it increases with the market value every year. And the assessors are ruthless – market value of your home went up by 20%, as they have the past few years? Expect your tax bill to too (granted, I believe legislators have restricted this to a maximum increase of 8% a year as of this session, but I believe localities are still allowed to exceed that in some cases). Source: I'm from Dallas, and a homeowner in Los Angeles. Though rates are publically available: https://smartasset.com/taxes/california-property-tax-calculator https://smartasset.com/taxes/california-property-tax-calcula... https://smartasset.com/taxes/texas-property-tax-calculator https://smartasset.com/taxes/texas-property-tax-calculator

jdhn 5y ago
If California somehow repealed Prop 13, you would see their property tax rate zoom up to the point where Texas property taxes wouldn't seem that outrageous by comparison.
- deleted 5y ago
  [deleted]
- bdowling 5y ago
  > If California somehow repealed Prop 13... In November 2020, California scaled back on some of the benefits of Prop 13 for families. Prior to Prop 19, properties could pass from parents to children and the property tax basis would not increase. Now, the benefit is limited to the parents' primary residence, the inheriting child or children need to reside in the property for one year as their primary residence, and the amount excluded from reassessment is limited to $1m. The main proponents of Prop 19 were realtors who expected the change to result in more sales of properties after parents die. I haven't seen data on it, but they were probably right. There will probably be more sales as children who inherit their parents' properties can't afford to keep them after reassessment. Prop 19 was titled the "The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act" because it allowed seniors and victims of wildfires to sell a home and buy a new one anywhere in the state and carry over their current property tax assessment, regardless of the sale price. However, it totally undermined one of the best ways for families to pass wealth on to their children, the acquisition of properties for investment. Corporations, of course, were unaffected.
  - thebradbain 5y ago
    Well, considering most of those heirs who are not using it as their primary home would just end up using those homes to rent out at market rate anyways, it makes sense to tax it. If they don't want to deal with that, they can just sell it. Commercial properties over $3 million were also affected. Those moving into the inherited home as their primary residence a̶r̶e̶ ̶n̶o̶t̶ ̶a̶f̶f̶e̶c̶t̶e̶d̶ EDIT (see comment below): *will be re-assessed, but includes a generous exclusion of the first $1 million. I'm a would-be beneficiary of Prop 13 Pre-19 and a homeowner in Los Angeles, and even I voted for this reform. I would vote to repeal Prop 13 in whole if I could. Prop 13 was originally meant to protect middle-class Californians from losing their primary home (for which other alternatives exist: see TX. Your primary home cannot be taken from you for tax reasons or in bankruptcy) – not a tax loophole for generational wealth.
    - bdowling 5y ago
      > Those moving into the inherited home as their primary residence are not affected. Not true. Only $1m of assessed value is excluded for heirs moving into an inherited property as a primary residence. Inheriting property worth more than $1m is not a bad problem to have, but in places like Los Angeles it means that a lot of people not be able to afford to live in the property and will be faced with either fixing it up for use as a rental or selling the home they grew up in.
      - thebradbain 5y ago
        Thanks for the correction -- you're right. It doesn't really change my point though – I still don't see why a $2M+ property deserves to get transferred tax free. A $2M property would still only pay a little over $10,000/year in property taxes after the $1M exemption (which you can deduct against federal taxes, even with the SALT cap, which itself will likely repealed!). A pretty nice discount for an heir compared to someone who just went through actually buying a $2M home and pays twice the tax. Honestly, if you're inheriting up to a $5M home for free in CA, and are still reliant on a job to make ends meet, the payment probably comes out to more or less what you would pay in a mortgage+taxes for a ~$1M home. A pretty good deal! If you're inheriting anything more than a $5M home, then I don't really think Prop 13 was intended for you in the first place – people with $10, $50, $100 million+ properties, well, it's my belief that we shouldn't be basing our entire housing policy on what's best for them. They can likely afford the taxes. Not to mention that you can only shield a house from re-assessment for 1 generation, so even if there was a multi-million dollar family home that this family simply couldn't afford to pay taxes on otherwise, the heir of the heir would have to pay taxes regardless. So what's so privileged about the situation that tax reassessment gets to skip a generation? The law as is is designed to benefit a shrinking sliver of the CA population while debatably actively hurting the rest. I think a decent compromise that won't actively pull the rug out from anyone while also leveling the playing field is just ending Prop 13-related inheritance exemptions altogether. It wasn't even part of the original law. Then get rid of the exemption for all commercial and secondary/investment properties going forward. Let people live in their primary homes with a frozen tax basis, sure, just don't let them transfer it (and for the edge case, to encourage downsizing after becoming "empty nesters", allow people to transfer their assessed tax basis to a property of lesser or equal market value).
- asdff 5y ago
  Aren't they still half of what they are in austin?
somethoughts 5y ago
Additionally as someone who did some casual redfinning around Austin at the start of the pandemic, I'd say my own natural inclination was to shop pretty close to the price of the California single family home (i.e. $1M) and envision what it'd be like to live in/grow into the Texas mansion (i.e. $1M) at the equivalent price range. I probably wouldn't have downsized to a $400K home and I probably would have been sticker shocked by the property tax bills.
- thebradbain 5y ago
  Another thing that makes the home buying / mortgage comparison not 1-1 is Fannie Mae: Austin/Dallas/Houston/San Antonio are not classified as "High Cost of Living" areas, as SF/LA/NYC are. This means that a conventional mortgage as of 2021 in Texas is capped at $548k, while in LA/SF it's $822k. The practical effect of that is any mortgage higher than $548k in TX is classified as a "Jumbo"/non-conventional loan, which usually comes with a higher interest rate and/or higher percent down required. You want a $1M house in TX rather than CA? Be prepared to put $400k+ down or accept a higher rate + PMI, rather than the normal 20% down in CA. All on top of the fact that you're paying the equivalent in taxes to a $2M+ home in CA.
vondur 5y ago
I thought Prop 13 no longer applies to current purchases? If you own a house under prop 13 it’s under way low property tax, but if you sell it, it get reassessed at the new current value. Is this not the case? When we purchased our house years ago the taxes weren’t cheap and we had to pay the additional Melli-Roos tax.
- thebradbain 5y ago
  Prop 13 still applies (though I personally think it inflates home prices in CA above their "true" market value and disincentivizes anyone from selling/moving). When I bought my home this year, it got re-assessed at my purchase price, yes. But for as long as Prop 13 is the law of the land, no matter how much home prices in CA inflate, my property tax is more or less capped at the price I paid for the house.
  - muzz 5y ago
    > though I personally think it inflates home prices in CA above their "true" market value and disincentivizes anyone from selling/moving Exactly. And this is important for potential homeowners to understand. It is one of the things that makes California real estate so attractive. One has to view their house as an investment, not just a place to live.
larsiusprime 5y ago
This is a huge reason that property values are cheaper in Texas. Either you pay high property tax rates on (relatively) cheaper property or you pay exorbitant rent to your landlord that just keeps escalating. There is very good evidence that property taxes are capitalized into property values. Land taxes in specific are fully capitalized (which is to say, they lower the price of the land, and the landlord can't pass on the tax to tenants), right in line with long-standing theory: https://web.archive.org/web/20201108135554/https://dors.dk/files/media/publikationer/arbejdspapirer/2017/02_arbejdspapir_land_tax.pdf https://web.archive.org/web/20201108135554/https://dors.dk/f... Paying property tax might sting, but those ruthless assessors and high rates are one of the few things keeping housing affordable in Texas.
- thebradbain 5y ago
  I agree! Also the fact that TX has much more lax zoning laws (Houston has none whatsoever) than CA, and a general lack of NIMBYism compared to the Bay Area in even the cities, you get a much more affordable metro area. Unaffordable housing prices are as much a policy choice as a function of the market.
- muzz 5y ago
  A decade ago, I owned a 200k house in Austin while making a 6-figure salary in California-- I paid more in property taxes on the house in Austin than I did on income taxes on my income in California.
  - throwaway6734 5y ago
    This is a good thing
  - Omniusaspirer 5y ago
    This is really only the case if you had substantial deductions of some sort. Assuming you made exactly 100k as a nice lowball you'd have owed $6947.92 in 2011 California income taxes. Harder to quickly find 2011 Austin property taxes but using todays rates without the homestead exemption you would have paid $4653 presuming you lived in Austin proper with Austin ISD taxes. This is obvious a simplified calculation assuming basic W2 income and may very well not have applied to you, but for others reading it's nice to see some actual numbers.
refurb 5y ago
Good luck finding a million dollar house in the Bay Area. And TX has a sales tax of 6.25%, while SF is 9.25%. And no state income tax in TX. It’s not even close.
- thebradbain 5y ago
  That's a state sales tax of 6.25%. Austin and Dallas are at a minimum of 8.25%, for example. Though if you're in a specialized planning district, you can be looking at sales taxes of 10%+. Cities have their own sales tax. And so can school districts (and they can have their own property taxes, too). And sure, you're right, there's not much housing under $1M in the Bay Area. That doesn't change the fact that a $1M home in TX still pays about the same in property taxes as a $2M home in SF. Or the fact that in SF your property taxes are essentially frozen at purchase price, and in TX they will increase every year.
  - 0xBDB 5y ago
    "Though if you're in a specialized planning district, you can be looking at sales taxes of 10%+" The maximum cumulative rate by law is 8.25%.
  - refurb 5y ago
    OP was referring to sales taxes in TX in general, not the highest cities, but point taken. And sure, property taxes for a $1M home in TX is the same as a $2M house in SF, but that's a mansion in TX and a 2 bedroom apartment in SF. You get way more for your money. And google tells me that TX does cap property tax increases. Not like Prop 13, but we all agree Prop 13 is terrible, right? And everyone is ignoring the state income tax which is 9.3% in the $60 to $300k bracket (and goes up to 13.3%). So if you’re making $250k, that’s saving of $20k alone, which is about the property tax in TX. It’s not even a close comparison in terms of the tax burden between the two.
- kelnos 5y ago
  No, SF is 8.625%, which is, as a sibling poster mentions, roughly the same (and in places lower) than in Austin.
achenatx 5y ago
homesteads are capped at 10% increase in valuation. City budgets are capped at 3.5% without a vote. The largest share of property taxes is actually school districts which run roughly 50% of the property tax in austin. The city is 25% and the other 25% is the county, health district, and community college. Tax rates float. If the valuations double, but the taxing entity budgets stay the same, then the tax rate will drop in half. Rising valuations dont have much to do with the increase in taxes over time.

jdhn 5y ago

If California somehow repealed Prop 13, you would see their property tax rate zoom up to the point where Texas property taxes wouldn't seem that outrageous by comparison.

deleted 5y ago
[deleted]
bdowling 5y ago
> If California somehow repealed Prop 13... In November 2020, California scaled back on some of the benefits of Prop 13 for families. Prior to Prop 19, properties could pass from parents to children and the property tax basis would not increase. Now, the benefit is limited to the parents' primary residence, the inheriting child or children need to reside in the property for one year as their primary residence, and the amount excluded from reassessment is limited to $1m. The main proponents of Prop 19 were realtors who expected the change to result in more sales of properties after parents die. I haven't seen data on it, but they were probably right. There will probably be more sales as children who inherit their parents' properties can't afford to keep them after reassessment. Prop 19 was titled the "The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act" because it allowed seniors and victims of wildfires to sell a home and buy a new one anywhere in the state and carry over their current property tax assessment, regardless of the sale price. However, it totally undermined one of the best ways for families to pass wealth on to their children, the acquisition of properties for investment. Corporations, of course, were unaffected.
- thebradbain 5y ago
  Well, considering most of those heirs who are not using it as their primary home would just end up using those homes to rent out at market rate anyways, it makes sense to tax it. If they don't want to deal with that, they can just sell it. Commercial properties over $3 million were also affected. Those moving into the inherited home as their primary residence a̶r̶e̶ ̶n̶o̶t̶ ̶a̶f̶f̶e̶c̶t̶e̶d̶ EDIT (see comment below): *will be re-assessed, but includes a generous exclusion of the first $1 million. I'm a would-be beneficiary of Prop 13 Pre-19 and a homeowner in Los Angeles, and even I voted for this reform. I would vote to repeal Prop 13 in whole if I could. Prop 13 was originally meant to protect middle-class Californians from losing their primary home (for which other alternatives exist: see TX. Your primary home cannot be taken from you for tax reasons or in bankruptcy) – not a tax loophole for generational wealth.
  - bdowling 5y ago
    > Those moving into the inherited home as their primary residence are not affected. Not true. Only $1m of assessed value is excluded for heirs moving into an inherited property as a primary residence. Inheriting property worth more than $1m is not a bad problem to have, but in places like Los Angeles it means that a lot of people not be able to afford to live in the property and will be faced with either fixing it up for use as a rental or selling the home they grew up in.
    - thebradbain 5y ago
      Thanks for the correction -- you're right. It doesn't really change my point though – I still don't see why a $2M+ property deserves to get transferred tax free. A $2M property would still only pay a little over $10,000/year in property taxes after the $1M exemption (which you can deduct against federal taxes, even with the SALT cap, which itself will likely repealed!). A pretty nice discount for an heir compared to someone who just went through actually buying a $2M home and pays twice the tax. Honestly, if you're inheriting up to a $5M home for free in CA, and are still reliant on a job to make ends meet, the payment probably comes out to more or less what you would pay in a mortgage+taxes for a ~$1M home. A pretty good deal! If you're inheriting anything more than a $5M home, then I don't really think Prop 13 was intended for you in the first place – people with $10, $50, $100 million+ properties, well, it's my belief that we shouldn't be basing our entire housing policy on what's best for them. They can likely afford the taxes. Not to mention that you can only shield a house from re-assessment for 1 generation, so even if there was a multi-million dollar family home that this family simply couldn't afford to pay taxes on otherwise, the heir of the heir would have to pay taxes regardless. So what's so privileged about the situation that tax reassessment gets to skip a generation? The law as is is designed to benefit a shrinking sliver of the CA population while debatably actively hurting the rest. I think a decent compromise that won't actively pull the rug out from anyone while also leveling the playing field is just ending Prop 13-related inheritance exemptions altogether. It wasn't even part of the original law. Then get rid of the exemption for all commercial and secondary/investment properties going forward. Let people live in their primary homes with a frozen tax basis, sure, just don't let them transfer it (and for the edge case, to encourage downsizing after becoming "empty nesters", allow people to transfer their assessed tax basis to a property of lesser or equal market value).
asdff 5y ago
Aren't they still half of what they are in austin?

somethoughts 5y ago

Additionally as someone who did some casual redfinning around Austin at the start of the pandemic, I'd say my own natural inclination was to shop pretty close to the price of the California single family home (i.e. $1M) and envision what it'd be like to live in/grow into the Texas mansion (i.e. $1M) at the equivalent price range. I probably wouldn't have downsized to a $400K home and I probably would have been sticker shocked by the property tax bills.

thebradbain 5y ago
Another thing that makes the home buying / mortgage comparison not 1-1 is Fannie Mae: Austin/Dallas/Houston/San Antonio are not classified as "High Cost of Living" areas, as SF/LA/NYC are. This means that a conventional mortgage as of 2021 in Texas is capped at $548k, while in LA/SF it's $822k. The practical effect of that is any mortgage higher than $548k in TX is classified as a "Jumbo"/non-conventional loan, which usually comes with a higher interest rate and/or higher percent down required. You want a $1M house in TX rather than CA? Be prepared to put $400k+ down or accept a higher rate + PMI, rather than the normal 20% down in CA. All on top of the fact that you're paying the equivalent in taxes to a $2M+ home in CA.

vondur 5y ago

I thought Prop 13 no longer applies to current purchases? If you own a house under prop 13 it’s under way low property tax, but if you sell it, it get reassessed at the new current value. Is this not the case? When we purchased our house years ago the taxes weren’t cheap and we had to pay the additional Melli-Roos tax.

thebradbain 5y ago
Prop 13 still applies (though I personally think it inflates home prices in CA above their "true" market value and disincentivizes anyone from selling/moving). When I bought my home this year, it got re-assessed at my purchase price, yes. But for as long as Prop 13 is the law of the land, no matter how much home prices in CA inflate, my property tax is more or less capped at the price I paid for the house.
- muzz 5y ago
  > though I personally think it inflates home prices in CA above their "true" market value and disincentivizes anyone from selling/moving Exactly. And this is important for potential homeowners to understand. It is one of the things that makes California real estate so attractive. One has to view their house as an investment, not just a place to live.

larsiusprime 5y ago

This is a huge reason that property values are cheaper in Texas. Either you pay high property tax rates on (relatively) cheaper property or you pay exorbitant rent to your landlord that just keeps escalating. There is very good evidence that property taxes are capitalized into property values. Land taxes in specific are fully capitalized (which is to say, they lower the price of the land, and the landlord can't pass on the tax to tenants), right in line with long-standing theory: https://web.archive.org/web/20201108135554/https://dors.dk/files/media/publikationer/arbejdspapirer/2017/02_arbejdspapir_land_tax.pdf https://web.archive.org/web/20201108135554/https://dors.dk/f... Paying property tax might sting, but those ruthless assessors and high rates are one of the few things keeping housing affordable in Texas.

thebradbain 5y ago
I agree! Also the fact that TX has much more lax zoning laws (Houston has none whatsoever) than CA, and a general lack of NIMBYism compared to the Bay Area in even the cities, you get a much more affordable metro area. Unaffordable housing prices are as much a policy choice as a function of the market.
muzz 5y ago
A decade ago, I owned a 200k house in Austin while making a 6-figure salary in California-- I paid more in property taxes on the house in Austin than I did on income taxes on my income in California.
- throwaway6734 5y ago
  This is a good thing
- Omniusaspirer 5y ago
  This is really only the case if you had substantial deductions of some sort. Assuming you made exactly 100k as a nice lowball you'd have owed $6947.92 in 2011 California income taxes. Harder to quickly find 2011 Austin property taxes but using todays rates without the homestead exemption you would have paid $4653 presuming you lived in Austin proper with Austin ISD taxes. This is obvious a simplified calculation assuming basic W2 income and may very well not have applied to you, but for others reading it's nice to see some actual numbers.

refurb 5y ago

Good luck finding a million dollar house in the Bay Area. And TX has a sales tax of 6.25%, while SF is 9.25%. And no state income tax in TX. It’s not even close.

thebradbain 5y ago
That's a state sales tax of 6.25%. Austin and Dallas are at a minimum of 8.25%, for example. Though if you're in a specialized planning district, you can be looking at sales taxes of 10%+. Cities have their own sales tax. And so can school districts (and they can have their own property taxes, too). And sure, you're right, there's not much housing under $1M in the Bay Area. That doesn't change the fact that a $1M home in TX still pays about the same in property taxes as a $2M home in SF. Or the fact that in SF your property taxes are essentially frozen at purchase price, and in TX they will increase every year.
- 0xBDB 5y ago
  "Though if you're in a specialized planning district, you can be looking at sales taxes of 10%+" The maximum cumulative rate by law is 8.25%.
- refurb 5y ago
  OP was referring to sales taxes in TX in general, not the highest cities, but point taken. And sure, property taxes for a $1M home in TX is the same as a $2M house in SF, but that's a mansion in TX and a 2 bedroom apartment in SF. You get way more for your money. And google tells me that TX does cap property tax increases. Not like Prop 13, but we all agree Prop 13 is terrible, right? And everyone is ignoring the state income tax which is 9.3% in the $60 to $300k bracket (and goes up to 13.3%). So if you’re making $250k, that’s saving of $20k alone, which is about the property tax in TX. It’s not even a close comparison in terms of the tax burden between the two.
kelnos 5y ago
No, SF is 8.625%, which is, as a sibling poster mentions, roughly the same (and in places lower) than in Austin.

achenatx 5y ago

homesteads are capped at 10% increase in valuation. City budgets are capped at 3.5% without a vote. The largest share of property taxes is actually school districts which run roughly 50% of the property tax in austin. The city is 25% and the other 25% is the county, health district, and community college. Tax rates float. If the valuations double, but the taxing entity budgets stay the same, then the tax rate will drop in half. Rising valuations dont have much to do with the increase in taxes over time.