Buying your first home in Plano or the DFW area? Understanding Texas property taxes is crucial to avoiding surprises when that first tax bill arrives. Since Texas has no state income tax, property taxes here are higher than in many other states, typically ranging from 1.8% to 2.4% of your home’s value annually in Collin County. Here’s what you need to know to budget properly and keep your taxes manageable.
How Your Property Tax Bill Is Calculated
Texas property taxes are \” ad valorem,\” meaning they’re based on your home’s value. Each year, your county appraisal district estimates your home’s market value as of January 1. That value, minus any exemptions, becomes your taxable value.
Local entities (county, city, school district) set their own tax rates, expressed \”per $100\” of taxable value. Here’s the simple formula:
Taxable Value ÷ 100 × Tax Rate = Annual Property Tax
Example: A $400,000 home with a combined rate of 2.0 per $100 would have an estimated annual tax bill of $8,000 (or about $667/month). With homestead exemptions, this typically drops to around $7,200 annually ($600/month).
This monthly amount gets added to your mortgage payment if you escrow taxes, which is why it’s essential to factor property taxes into your home-buying budget from day one.
What Happens at Closing
Texas property taxes are paid in arrears (after the year ends), so buyers and sellers split the tax burden at closing through a process called tax proration. Your title company handles the calculation and shows this on your closing statement.
Additionally, expect to:
- Prepay 3–6 months of property taxes into an escrow account at closing
- Budget for this in your closing costs, which typically run 2–5% of your purchase price in Texas
On a $400,000 home, expect to bring $1,500–$3,600 in prepaid property taxes to closing, in addition to your down payment.
Understanding Escrow and Monthly Payments
Most lenders require you to escrow property taxes. They collect a portion of your estimated annual tax bill each month, hold it in an escrow account, and pay your tax bill when it’s due (by January 31).
Important to know:
- Your lender performs an annual escrow analysis. If they collect too much, you get a refund; if too little, your monthly payment increases.
- Your monthly payment can increase even with a fixed-rate mortgage if your home’s value or local tax rates rise.
File for Your Homestead Exemption Immediately
This is the most important step for Texas homeowners. A homestead exemption reduces your taxable value, lowering your annual property tax bill. In Collin County, the general homestead exemption typically removes at least $100,000 from your taxable value for school district taxes.
How to apply:
- File with your county appraisal district (Collin Central Appraisal District for Plano)
- It’s free, and you typically only file once
- Deadline: April 30 to receive the exemption for that tax year
- Additional exemptions exist for homeowners over 65, people with disabilities, and veterans
Pro tip: Set a reminder to file within 30 days of closing. This one form can save you hundreds or thousands of dollars per year.
The 10% Cap and Protesting Your Appraisal
Once you file for a homestead exemption, you’re protected by Texas’s 10% appraisal cap. Your taxable appraised value can only increase by a maximum of 10% per year (plus the value of new improvements), even if your home’s market value skyrockets.
Every spring, you’ll receive a notice of appraised value. If you believe it’s too high, you have the right to protest by May 15 (or 30 days after the notice is mailed). Even a $20,000 reduction can save you several hundred dollars per year.
Your options:
- DIY: File and present the protest yourself (free)
- Hire a consultant: Many companies protest on your behalf and only charge a fee if successful
Your Action Plan
Before making an offer:
- Check estimated property taxes on the county appraisal district website
- Factor taxes into your monthly budget (not just the mortgage payment)
Right after closing:
- File for your homestead exemption within 30 days
- Confirm your lender is escrowing taxes
Every spring:
- Review your notice of appraised value
- Protest if your value seems inflated (deadline: May 15)
Bottom Line
Property taxes in Texas are a significant ongoing expense, but they’re manageable when you understand the system. File your homestead exemption immediately after closing, budget for the full cost of homeownership (mortgage + taxes + insurance), and don’t hesitate to protest your appraisal if needed.
With the right preparation, you’ll handle Texas property taxes like a pro from day one.
Ready to Buy Your First Home in Plano?
I help first-time homebuyers navigate the Plano and DFW real estate market with confidence, from understanding property taxes to finding the perfect home for your budget. Contact me today to get started on your homeownership journey.
