Homestead Limitation (aka Residence Homestead “Cap”)

A homestead limitation (homestead cap) is a limitation of cap on the amount of value a property will be taxed from year to year. The appraisal district identifies the homestead limitation amount as the “appraised value.” The limitation slows the annual increase of the property tax bill by reducing the amount of value subject to taxation. For residence homesteads, the annual increase is limited to 10% more than the previous year’s appraised value.

For example: In 2021, a property owner with a residence homestead has a market value and appraised value of $100,000. Over the next year, prices in the area soar and the appraisal districts values increase on the property for 2022 to $140,000. Since the property has a homestead on January 1, 2021, the appraised value can only increase by 10% plus any new construction. The market value for 2022 would be $140,000, but the appraised value (with the homestead limitation) would be $110,000.

The first full year (January – December) after the property owner qualified for the homestead exemption the limitation will go into effect.

Example 1: A property owner purchases the property December of 2021, and they apply for their homestead exemption on January 1st, 2022. The homestead limitation will not go into effect until January 1st, 2023.

Example 2: A property owner purchases a property in April of 2022, and they qualify for the prorated exemption, on April 5th, 2022. They receive the full homestead exemption from January 2023 to December 2023. The homestead limitation will go into effect January 1st, 2021, one full year after the January 1st date the exemption qualified.