10 percent appraisal cap for rentals within fair market rent

The text as introduced · 4,365 words

89R249 LHC-D

By: Goodwin
H.B. No. 203

A BILL TO BE ENTITLED

AN ACT

relating to a limitation on increases in the appraised value for ad

valorem tax purposes of certain leased residential real property.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 1.12(d), Tax Code, as effective until

January 1, 2027, is amended to read as follows:

(d) For purposes of this section, the appraisal ratio of

property to which Section 23.23 , [ or ] 23.231 , or 23.232 applies is

the ratio of the property's market value as determined by the

appraisal district or appraisal review board, as applicable, to the

market value of the property according to law. The appraisal ratio

is not calculated according to the appraised value of the property

as limited by Section 23.23 , [ or ] 23.231 , or 23.232 .

SECTION 2. Section 1.12(d), Tax Code, as effective January

1, 2027, is amended to read as follows:

(d) For purposes of this section, the appraisal ratio of

property [ a homestead ] to which Section 23.23 or 23.232 applies is

the ratio of the property's market value as determined by the

appraisal district or appraisal review board, as applicable, to the

market value of the property according to law. The appraisal ratio

is not calculated according to the appraised value of the property

as limited by Section 23.23 or 23.232 .

SECTION 3. Subchapter B, Chapter 23, Tax Code, is amended by

adding Section 23.232 to read as follows:

Sec. 23.232. LIMITATION ON APPRAISED VALUE OF CERTAIN

LEASED RESIDENTIAL REAL PROPERTY. (a) In this section:

(1) "Fair market rent" means the most recent

applicable fair market rent established by the United States

Department of Housing and Urban Development for the zip code in

which the property is located.

(2) "New improvement" means an improvement to real

property described by Subsection (b) made after the most recent

appraisal of the property that increases the market value of the

property and the value of which is not included in the appraised

value of the property for the preceding tax year. The term does not

include repairs to or ordinary maintenance of an existing structure

or the grounds or another feature of the property.

(b) This section applies only to real property that:

(1) is a single-family residential property leased to

a lessee and used by the lessee as a primary residence; and

(2) is leased to a lessee for a rent that does not

exceed the fair market rent.

(c) This section does not apply to property appraised under

Subchapter C, D, E, F, G, or H.

(d) Notwithstanding the requirements of Section 25.18 and

regardless of whether the appraisal office has appraised the

property and determined the market value of the property for the tax

year, an appraisal office may increase the appraised value of real

property described by Subsection (b) for a tax year to an amount not

to exceed the lesser of:

(1) the market value of the property for the most

recent tax year that the market value was determined by the

appraisal office; or

(2) the sum of:

(A) 10 percent of the appraised value of the

property for the preceding tax year;

(B) the appraised value of the property for the

preceding tax year; and

(C) the market value of all new improvements to

the property.

(e) If only part of a parcel of real property qualifies for

the limitation provided by Subsection (d), the limitation applies

only to that part of the parcel.

(f) When appraising real property described by Subsection

(b), the chief appraiser shall:

(1) appraise the property at its market value; and

(2) include in the appraisal records both the market

value of the property and the amount computed under Subsection

(d)(2).

(g) The limitation provided by Subsection (d) takes effect

as to a parcel or part of a parcel of real property described by

Subsection (b) on January 1 of the tax year following the first tax

year in which the owner of the property leases the property for an

amount described by Subsection (b). Except as provided by

Subsection (h), the limitation expires on January 1 of the tax year

following the first tax year in which the owner of the property

ceases to lease the property for an amount described by Subsection

(b).

(h) Notwithstanding Subsections (a)(2) and (d) and except

as provided by Subdivision (2) of this subsection, an improvement

to property that would otherwise constitute a new improvement is

not treated as a new improvement if the improvement is a replacement

structure for a structure that was rendered unusable by a casualty

or by wind or water damage. For purposes of appraising the property

under Subsection (d) in the tax year in which the structure would

have constituted a new improvement:

(1) the appraised value the property would have had in

the preceding tax year if the casualty or damage had not occurred is

considered to be the appraised value of the property for that year,

regardless of whether that appraised value exceeds the actual

appraised value of the property for that year as limited by

Subsection (d); and

(2) the replacement structure is considered to be a

new improvement only if:

(A) the square footage of the replacement

structure exceeds that of the replaced structure as that structure

existed before the casualty or damage occurred; or

(B) the exterior of the replacement structure is

of higher quality construction and composition than that of the

replaced structure.

(i) In this subsection, "disaster recovery program" means

the disaster recovery program administered by the General Land

Office or by a political subdivision of this state that is funded

with community development block grant disaster recovery money

authorized by federal law. Notwithstanding Subsection (h)(2), and

only to the extent necessary to satisfy the requirements of the

disaster recovery program, a replacement structure described by

that subdivision is not considered to be a new improvement if to

satisfy the requirements of the disaster recovery program it was

necessary that:

(1) the square footage of the replacement structure

exceed that of the replaced structure as that structure existed

before the casualty or damage occurred; or

(2) the exterior of the replacement structure be of

higher quality construction and composition than that of the

replaced structure.

(j) To receive a limitation under Subsection (d), a person

claiming the limitation must annually apply for the limitation by

filing an application with the chief appraiser of the appraisal

district. The chief appraiser shall accept and approve or deny an

application. For property appraised by more than one appraisal

district, a separate application must be filed in each appraisal

district to receive the limitation in that district.

(k) The comptroller, in prescribing the contents of the

application form for a limitation under Subsection (d), shall

ensure that the form requires an applicant to provide the

information necessary to determine the validity of the limitation

claim. The form must require an applicant to provide the

applicant's name and driver's license number, personal

identification certificate number, social security number, or

taxpayer identification number. The comptroller shall include on

the form a notice of the penalties prescribed by Section 37.10,

Penal Code, for making or filing an application containing a false

statement and shall include on the form a statement explaining that

the application must be made annually. In this subsection,

"driver's license" and "personal identification certificate" have

the meanings assigned by Section 11.43(f).

(l) To receive a limitation under Subsection (d) for a tax

year, a person must apply for the limitation not later than May 1 of

that year. Except as provided by Subsection (m), if the person

fails to timely file a completed application, the person may not

receive the limitation for that year.

(m) The chief appraiser shall accept and approve or deny an

application for a limitation under Subsection (d) for a tax year

after the deadline for filing the application has passed if the

application is filed not later than one year after the delinquency

date for the taxes on the property for that tax year. If a late

application is approved after approval of the appraisal records by

the appraisal review board, the chief appraiser shall notify the

collector for each taxing unit in which the property is located. If

the tax has not been paid, the collector shall deduct from the

person's tax bill the difference between the taxes that would have

been due had the property not qualified for the limitation and the

taxes due after taking the limitation into account. If the tax has

been paid, the collector shall refund the difference.

(n) This subsection expires January 1, 2030. For purposes

of applying the limitation provided by Subsection (d) in the first

tax year after the 2025 tax year in which the property is appraised

for taxation:

(1) the property is considered to have been appraised

for taxation in the 2025 tax year at a market value equal to the

appraised value of the property for that tax year; and

(2) a person who acquired real property described by

Subsection (b) in a tax year before the 2025 tax year is considered

to have acquired the property on January 1, 2025.

SECTION 4. Section 41.41(a), Tax Code, as effective until

January 1, 2027, is amended to read as follows:

(a) A property owner is entitled to protest before the

appraisal review board the following actions:

(1) determination of the appraised value of the

owner's property or, in the case of land appraised as provided by

Subchapter C, D, E, or H, Chapter 23, determination of its appraised

or market value;

(2) unequal appraisal of the owner's property;

(3) inclusion of the owner's property on the appraisal

records;

(4) denial to the property owner in whole or in part of

a partial exemption;

(4-a) determination that the owner's property does not

qualify for the circuit breaker limitation on appraised value

provided by Section 23.231;

(4-b) determination that the owner's property does not

qualify for the limitation on appraised value provided by Section

23.232;

(5) determination that the owner's land does not

qualify for appraisal as provided by Subchapter C, D, E, or H,

Chapter 23;

(6) identification of the taxing units in which the

owner's property is taxable in the case of the appraisal district's

appraisal roll;

(7) determination that the property owner is the owner

of property;

(8) a determination that a change in use of land

appraised under Subchapter C, D, E, or H, Chapter 23, has occurred;

or

(9) any other action of the chief appraiser, appraisal

district, or appraisal review board that applies to and adversely

affects the property owner.

SECTION 5. Section 41.41(a), Tax Code, as effective January

1, 2027, is amended to read as follows:

(a) A property owner is entitled to protest before the

appraisal review board the following actions:

(1) determination of the appraised value of the

owner's property or, in the case of land appraised as provided by

Subchapter C, D, E, or H, Chapter 23, determination of its appraised

or market value;

(2) unequal appraisal of the owner's property;

(3) inclusion of the owner's property on the appraisal

records;

(4) denial to the property owner in whole or in part of

a partial exemption;

(4-a) determination that the owner's property does not

qualify for the limitation on appraised value provided by Section

23.232;

(5) determination that the owner's land does not

qualify for appraisal as provided by Subchapter C, D, E, or H,

Chapter 23;

(6) identification of the taxing units in which the

owner's property is taxable in the case of the appraisal district's

appraisal roll;

(7) determination that the property owner is the owner

of property;

(8) a determination that a change in use of land

appraised under Subchapter C, D, E, or H, Chapter 23, has occurred;

or

(9) any other action of the chief appraiser, appraisal

district, or appraisal review board that applies to and adversely

affects the property owner.

SECTION 6. Section 42.26(d), Tax Code, as effective until

January 1, 2027, is amended to read as follows:

(d) For purposes of this section, the value of the property

subject to the suit and the value of a comparable property or sample

property that is used for comparison must be the market value

determined by the appraisal district when the property is subject

to the limitation on appraised value imposed by Section 23.23 , [ or ]

23.231 , or 23.232 .

SECTION 7. Section 42.26(d), Tax Code, as effective January

1, 2027, is amended to read as follows:

(d) For purposes of this section, the value of the property

subject to the suit and the value of a comparable property or sample

property that is used for comparison must be the market value

determined by the appraisal district when the property is [ a

residence homestead ] subject to the limitation on appraised value

imposed by Section 23.23 or 23.232 .

SECTION 8. Sections 403.302(d) and (i), Government Code, as

effective until January 1, 2027, are amended to read as follows:

(d) For the purposes of this section, "taxable value" means

the market value of all taxable property less:

(1) the total dollar amount of any residence homestead

exemptions lawfully granted under Section 11.13(b) or (c), Tax

Code, in the year that is the subject of the study for each school

district;

(2) one-half of the total dollar amount of any

residence homestead exemptions granted under Section 11.13(n), Tax

Code, in the year that is the subject of the study for each school

district;

(3) the total dollar amount of any exemptions granted

before May 31, 1993, within a reinvestment zone under agreements

authorized by Chapter 312, Tax Code;

(4) subject to Subsection (e), the total dollar amount

of any captured appraised value of property that:

(A) is within a reinvestment zone created on or

before May 31, 1999, or is proposed to be included within the

boundaries of a reinvestment zone as the boundaries of the zone and

the proposed portion of tax increment paid into the tax increment

fund by a school district are described in a written notification

provided by the municipality or the board of directors of the zone

to the governing bodies of the other taxing units in the manner

provided by former Section 311.003(e), Tax Code, before May 31,

1999, and within the boundaries of the zone as those boundaries

existed on September 1, 1999, including subsequent improvements to

the property regardless of when made;

(B) generates taxes paid into a tax increment

fund created under Chapter 311, Tax Code, under a reinvestment zone

financing plan approved under Section 311.011(d), Tax Code, on or

before September 1, 1999; and

(C) is eligible for tax increment financing under

Chapter 311, Tax Code;

(5) the total dollar amount of any captured appraised

value of property that:

(A) is within a reinvestment zone:

(i) created on or before December 31, 2008,

by a municipality with a population of less than 18,000; and

(ii) the project plan for which includes

the alteration, remodeling, repair, or reconstruction of a

structure that is included on the National Register of Historic

Places and requires that a portion of the tax increment of the zone

be used for the improvement or construction of related facilities

or for affordable housing;

(B) generates school district taxes that are paid

into a tax increment fund created under Chapter 311, Tax Code; and

(C) is eligible for tax increment financing under

Chapter 311, Tax Code;

(6) the total dollar amount of any exemptions granted

under Section 11.251 or 11.253, Tax Code;

(7) the difference between the comptroller's estimate

of the market value and the productivity value of land that

qualifies for appraisal on the basis of its productive capacity,

except that the productivity value estimated by the comptroller may

not exceed the fair market value of the land;

(8) the portion of the appraised value of residence

homesteads of individuals who receive a tax limitation under

Section 11.26, Tax Code, on which school district taxes are not

imposed in the year that is the subject of the study, calculated as

if the residence homesteads were appraised at the full value

required by law;

(9) a portion of the market value of property not

otherwise fully taxable by the district at market value because of

action required by statute or the constitution of this state, other

than Section 11.311, Tax Code, that, if the tax rate adopted by the

district is applied to it, produces an amount equal to the

difference between the tax that the district would have imposed on

the property if the property were fully taxable at market value and

the tax that the district is actually authorized to impose on the

property, if this subsection does not otherwise require that

portion to be deducted;

(10) the market value of all tangible personal

property, other than manufactured homes, owned by a family or

individual and not held or used for the production of income;

(11) the appraised value of property the collection of

delinquent taxes on which is deferred under Section 33.06, Tax

Code;

(12) the portion of the appraised value of property

the collection of delinquent taxes on which is deferred under

Section 33.065, Tax Code;

(13) the amount by which the market value of property

to which Section 23.23 , [ or ] 23.231, or 23.232, Tax Code, applies

exceeds the appraised value of that property as calculated under

Section 23.23 , [ or ] 23.231, or 23.232, Tax Code, as applicable; and

(14) the total dollar amount of any exemptions granted

under Section 11.35, Tax Code.

(i) If the comptroller determines in the study that the

market value of property in a school district as determined by the

appraisal district that appraises property for the school district,

less the total of the amounts and values listed in Subsection (d) as

determined by that appraisal district, is valid, the comptroller,

in determining the taxable value of property in the school district

under Subsection (d), shall for purposes of Subsection (d)(13)

subtract from the market value as determined by the appraisal

district of properties to which Section 23.23 , [ or ] 23.231, or

23.232, Tax Code, applies the amount by which that amount exceeds

the appraised value of those properties as calculated by the

appraisal district under Section 23.23 , [ or ] 23.231, or 23.232, Tax

Code, as applicable. If the comptroller determines in the study

that the market value of property in a school district as determined

by the appraisal district that appraises property for the school

district, less the total of the amounts and values listed in

Subsection (d) as determined by that appraisal district, is not

valid, the comptroller, in determining the taxable value of

property in the school district under Subsection (d), shall for

purposes of Subsection (d)(13) subtract from the market value as

estimated by the comptroller of properties to which Section 23.23 ,

[ or ] 23.231, or 23.232, Tax Code, applies the amount by which that

amount exceeds the appraised value of those properties as

calculated by the appraisal district under Section 23.23 , [ or ]

23.231, or 23.232, Tax Code, as applicable.

SECTION 9. Sections 403.302(d) and (i), Government Code, as

effective January 1, 2027, are amended to read as follows:

(d) For the purposes of this section, "taxable value" means

the market value of all taxable property less:

(1) the total dollar amount of any residence homestead

exemptions lawfully granted under Section 11.13(b) or (c), Tax

Code, in the year that is the subject of the study for each school

district;

(2) one-half of the total dollar amount of any

residence homestead exemptions granted under Section 11.13(n), Tax

Code, in the year that is the subject of the study for each school

district;

(3) the total dollar amount of any exemptions granted

before May 31, 1993, within a reinvestment zone under agreements

authorized by Chapter 312, Tax Code;

(4) subject to Subsection (e), the total dollar amount

of any captured appraised value of property that:

(A) is within a reinvestment zone created on or

before May 31, 1999, or is proposed to be included within the

boundaries of a reinvestment zone as the boundaries of the zone and

the proposed portion of tax increment paid into the tax increment

fund by a school district are described in a written notification

provided by the municipality or the board of directors of the zone

to the governing bodies of the other taxing units in the manner

provided by former Section 311.003(e), Tax Code, before May 31,

1999, and within the boundaries of the zone as those boundaries

existed on September 1, 1999, including subsequent improvements to

the property regardless of when made;

(B) generates taxes paid into a tax increment

fund created under Chapter 311, Tax Code, under a reinvestment zone

financing plan approved under Section 311.011(d), Tax Code, on or

before September 1, 1999; and

(C) is eligible for tax increment financing under

Chapter 311, Tax Code;

(5) the total dollar amount of any captured appraised

value of property that:

(A) is within a reinvestment zone:

(i) created on or before December 31, 2008,

by a municipality with a population of less than 18,000; and

(ii) the project plan for which includes

the alteration, remodeling, repair, or reconstruction of a

structure that is included on the National Register of Historic

Places and requires that a portion of the tax increment of the zone

be used for the improvement or construction of related facilities

or for affordable housing;

(B) generates school district taxes that are paid

into a tax increment fund created under Chapter 311, Tax Code; and

(C) is eligible for tax increment financing under

Chapter 311, Tax Code;

(6) the total dollar amount of any exemptions granted

under Section 11.251 or 11.253, Tax Code;

(7) the difference between the comptroller's estimate

of the market value and the productivity value of land that

qualifies for appraisal on the basis of its productive capacity,

except that the productivity value estimated by the comptroller may

not exceed the fair market value of the land;

(8) the portion of the appraised value of residence

homesteads of individuals who receive a tax limitation under

Section 11.26, Tax Code, on which school district taxes are not

imposed in the year that is the subject of the study, calculated as

if the residence homesteads were appraised at the full value

required by law;

(9) a portion of the market value of property not

otherwise fully taxable by the district at market value because of

action required by statute or the constitution of this state, other

than Section 11.311, Tax Code, that, if the tax rate adopted by the

district is applied to it, produces an amount equal to the

difference between the tax that the district would have imposed on

the property if the property were fully taxable at market value and

the tax that the district is actually authorized to impose on the

property, if this subsection does not otherwise require that

portion to be deducted;

(10) the market value of all tangible personal

property, other than manufactured homes, owned by a family or

individual and not held or used for the production of income;

(11) the appraised value of property the collection of

delinquent taxes on which is deferred under Section 33.06, Tax

Code;

(12) the portion of the appraised value of property

the collection of delinquent taxes on which is deferred under

Section 33.065, Tax Code;

(13) the amount by which the market value of property

[ a residence homestead ] to which Section 23.23 or 23.232 , Tax Code,

applies exceeds the appraised value of that property as calculated

under Section 23.23 or 23.232, Tax Code, as applicable [ that

section ]; and

(14) the total dollar amount of any exemptions granted

under Section 11.35, Tax Code.

(i) If the comptroller determines in the study that the

market value of property in a school district as determined by the

appraisal district that appraises property for the school district,

less the total of the amounts and values listed in Subsection (d) as

determined by that appraisal district, is valid, the comptroller,

in determining the taxable value of property in the school district

under Subsection (d), shall for purposes of Subsection (d)(13)

subtract from the market value as determined by the appraisal

district of properties [ residence homesteads ] to which Section

23.23 or 23.232 , Tax Code, applies the amount by which that amount

exceeds the appraised value of those properties as calculated by

the appraisal district under Section 23.23 or 23.232 , Tax Code , as

applicable . If the comptroller determines in the study that the

market value of property in a school district as determined by the

appraisal district that appraises property for the school district,

less the total of the amounts and values listed in Subsection (d) as

determined by that appraisal district, is not valid, the

comptroller, in determining the taxable value of property in the

school district under Subsection (d), shall for purposes of

Subsection (d)(13) subtract from the market value as estimated by

the comptroller of properties [ residence homesteads ] to which

Section 23.23 or 23.232 , Tax Code, applies the amount by which that

amount exceeds the appraised value of those properties as

calculated by the appraisal district under Section 23.23 or 23.232 ,

Tax Code , as applicable .

SECTION 10. This Act applies only to the appraisal of

residential real property for ad valorem tax purposes for a tax year

that begins on or after the effective date of this Act.

SECTION 11. This Act takes effect January 1, 2026, but only

if the constitutional amendment proposed by the 89th Legislature,

Regular Session, 2025, to authorize the legislature to provide for

a limitation on the maximum appraised value for ad valorem tax

purposes of certain leased residential real property is approved by

the voters. If that amendment is not approved by the voters, this

Act has no effect.