(feel free to skip this section if you’re familiar with the general idea of property taxes)
Here is the issue. If you’ve never owned a home before then you need to get used to the idea of property taxes. Unlike income tax, or sales tax, which are triggered when you actually do something (making money or buying something), property tax is collected every year by a local government just because you own something. In this case, a house, land, or a condo. If that seems unfair to you, then you are not alone. But what are you going to do? (Apartment owners pay it too, and the cost is just built into the rent, so there’s really no way of escaping it).
So what do these property taxes go toward? Various things depending on the jurisdiction – schools, infrastructure, essential services, etc. However, most of it (and usually all of it) is administered at the local level. Here in Houston we get at least three (3!?) separate tax bills a year – one for water, one for the school district, and one for the city.
Property Tax in Houston
This is where you may be in for a shocker if moving in from another state. The property taxes here are high. I’m talking “you better be sitting down right now and have some Xanax close by” kind of high. But why on earth is it like that? Here are a few different reasons I can think of:
No income tax
There is no city or state income tax in Houston. In New York City, you pay 3-4 percent of you income in city tax plus 4-9 percent in state tax. In almost all other states, income taxes make up a huge portion of their revenue, so Texas has to make it up in some other way. One way to think of it is that you are taxed more just for living (and even more if you want to live in a super luxurious home), but you are taxed less for making money. So get out and make some money!
Low home prices
I believe that local governments feel justified in a certain way in taxing a higher percentage of home value here, because there is simply less home value to be taxed. The same $150K home here (Home A) in Houston might cost $300K or more (Home B) if located in other major cities. If Home A is taxed at 3 percent and Home B is taxed at 1.5 percent, then you are shelling out $4500 a year regardless.
This is a concept that is unique to Texas. When you buy a new house most anywhere else, you are paying for the builder to place plumbing and other infrastructure under your house and connect it to local water and sewer services. Not so in Texas. Instead, a MUD (Municipal Utility District) is established and takes out a gajillion bonds in order to finance all of this infrastructure. These bonds are then paid off over time by the MUD, who sends you a tax bill every year to cover this charge. This makes homes cheaper up front compared to other areas, but creates an additional cost for everyone who plans to use the home until the bonds are paid off. (Note: everything within the City of Houston boundaries is not covered by a MUD. They pay tax directly to the city. )
Are you calmed down yet? Ok. Take a breath and relax. Even with the high property taxes, Texas consistently ranks among the states with the lowest tax burdens. And Houston is a great place to live. In fact, it’s the coolest. Everyone from out of state that I talked to is very pleasantly surprised with how much home you can get for your money here. But it’s very important that you know about your taxes before you buy, or else you may get a surprise in the mail that’s not so pleasant.
There you have it, Houston property taxes in a nutshell. Feel free to chime in below!