Let's apply a little more math to the property tax issue

A few days ago I wrote "A Texas Property Tax Appraisal Cap Primer", which tries to elucidate the whole appraisal cap issue. But, after thinking about it for a few days, I don't think I got the idea completely across the finish line. I didn't explain what it means for your wallet, which is the bottom line, after all. So let's apply a little more math (and research) to the problem.

Let's start with the basic mortgage. Still using the $100,000 property, we'll assume a $5,000 down payment and a 6.3% interest rate. Therefore, a $95,000 mortgage across 30 years yields a $588 monthly payment.

Year	Valuation	Mortgage Payment
Purchase	$100,000	$588.00

Now let's start adding the real taxes. First, there's school property taxes. For the school district where I live, the tax rate is 1.80000, or $1.80 of tax for every $1,000 of assessed value. However, I get two exemptions: a Homestead Exemption from the state and a Homestead Exemption from the school district. The state exemption lowers my valuation by $15,000. The school district exemption additionally lowers my valuation by 20%. Therefore, for school district tax purposes, my valuation is:

$100,000 - $15,000 - (20% of $100,000) = $65,000

And my school district tax is $65,000 taxed at a tax rate of 1.8000, or $1,170 yearly, or $97.50 each month.

Year	Valuation	Mortgage Payment	School Tax
Purchase	$100,000	$588.00	$97.50

Second, there's Municipal Utility District (MUD) taxes. The rate in my district is 0.57000, and I receive no homestead exemption. Therefore my MUD tax is $100,000 taxed at a rate of 0.57000, or $570 yearly, or $47.50 each month.

Year	Valuation	Mortgage Payment	School Tax	MUD Tax
Purchase	$100,000	$588.00	$97.50	$47.50

Staying with me? Lastly, we add county taxes. Now there are seven taxing authorities for which the county collects taxes. Each of them has its own exemption and tax rate. I have neither the room in this post nor the patience in my heart to share the details, so you'll have to trust me on this one. County taxes total $685.64 yearly, and $57.14 monthly.

Year	Valuation	Mortgage Payment	School Tax	MUD Tax	County Tax
Purchase	$100,000	$588.00	$97.50	$47.50	$57.14

So for the first year of home ownership, the total monthly payment is $790.14, of which 25% is taxes. Notice that I haven't included mortgage insurance or homeowners insurance in the mix; we're just talking mortgage and taxes here. Now, everyone hop into your time-traveling Delorean and go forward seven years. And what do we find?

Year	Valuation	Mortgage Payment	School Tax	MUD Tax	County Tax
7	$194,872	$588.00	$211.35	$92.56	$111.80

Yikes! Our total monthly payment is now $1,003.71, of which 42% is taxes, and still without mortgage insurance and homeowners insurance included. And please understand, I made no edits to the tax rates for each of the taxing authorities in the spreadsheet that I used to calculate this. I simply increased the appraisal valuation by 10% every year. The increased appraisal value resulted in increased taxes.



O.K. I have definitely covered this subject enough. As you can see, the 10% limit on appraisal increases is ridiculous. If taxing authorities think they're entitled to 10% growth every year, they need to come to the voters and ask us to approve 10% tax rate hikes every year. Hiding behind appraisal creep is cowardly.

By the way . . . any of you getting a guaranteed 10% increase in your paycheck each year? Yep, same here.