TEXAS PROPERTY-TAX DEFERRALS
for Over-65 or Disabled Homeowners

     Texas state law provides that people who are either disabled or at least 65 years old may defer taxes on their homestead property until it is sold or bequeathed.  Such deferred taxes accrue 8% simple interest until paid; for long deferrals, this is equivalent to a substantially lower rate of compound interest.

     This tax deferral can be applied to homestead taxes levied by all taxing authorities -- school district, county, city, community college, and utility district.  It can be initiated by a  deferral application to your local appraisal district (e.g., Travis or  Williamson).  To be eligible, homeowners must be registered for either the over-65 or the disabled homestead exemptions.

     Once a valid senior/disabled deferral application has been registered, the amount of taxes paid is up to the homeowners.  For example, they could "freeze" their taxes by continuing to pay a fixed amount.  Alternatively, they could stop paying any property taxes at all, which is probably the best economic choice since the uncompounded interest makes this a good investment.  But note that any tax deferrals correspondingly reduce the homeowner's equity in the property.

     The long-term effect of such tax deferrals on the net worth of the property depends on the portion of taxes deferred as well as on changes over time in the market value of the property.  A  deferral calculator can be used to approximately predict this future residual value under various conditions.

Limited short-term property-tax deferral is available to ALL homesteads
when homestead appraisals increase by more than 5% in a year
(Not relevant when over-65 or disabled, since then the method above is better)

     A separate provision in Texas law provides that taxes due to appraisal increases of more than 5% in a year can be deferred by making a similar application.  While this deferral is available to all homesteads (not just over-65 or disabled), it is much more limited in its scope:
     [a] In this case, only the taxes due to the excess over 105% of the previous-year appraisal can be deferred.   This means the largest such deferral next year will be about 5% of total taxes, since the annual household-assessment increase is limited to 10%.  Thus this kind of deferral for a median $150,000 homestead will be less than $200 per year, although successive years of over-5% increases could increase the deferral amount proportionally.
     [b] An appropriate portion of taxes deferred this way must be paid in any subsequent years in which the increase in assessed value falls short of 5%.  Thus use of this provision typically results in a smoothing out of sharp increases in tax payments over a few years, rather than long-term deferral. This in turn means that the effective compounded interest rate is in most cases only slightly below the 8% simple interest rate charged.

This information was developed by Hunter Ellinger for an ACC advisory committee.  He welcomes suggestions for correction or clarification.