The 10% Homestead Cap: Why a Lower Market Value Might Not Move Your Bill

Every notice of appraised value that lands in a Collin, Dallas, Denton or Tarrant mailbox carries at least two dollar figures for a homesteaded property, and they are easy to conflate. One is the district's opinion of what the house would sell for. The other is the number the tax bill is actually built from, and on a homestead the two can differ by tens of thousands of dollars. Section 23.23 of the Tax Code is why, and it is worth reading closely before deciding whether a protest is worth filing.

Market value, appraised value, taxable value

A notice usually shows three related numbers, and a district that lists all three does the reader a favor. Market value is the appraiser's estimate of what a willing buyer would pay in an arm's-length sale — this is the figure a comp-based protest argument attacks. Appraised value is what Section 23.23 actually limits: for a residence homestead, it is the lesser of market value or last year's appraised value increased by 10 percent, plus the value of any new improvements. Taxable value is appraised value minus whatever exemptions apply — the general homestead exemption under Section 11.13, plus any age, disability or local-option exemption on file. The tax rate is applied to taxable value, not to market value, and not even to appraised value directly.

The formula in Section 23.23

Section 23.23(a) states it as an arithmetic rule, not a policy preference: the appraised value of a qualified residence homestead for the current year may not exceed the lesser of (1) the property's market value, or (2) the sum of last year's appraised value, 10 percent of that value, and the market value of any new improvements made since the last appraisal. "New improvement" has its own definition in Section 23.23(e) — an addition that increases market value, such as a pool or a finished room, not routine repair or maintenance. The cap first applies on January 1 of the year after a homeowner qualifies for the exemption, under Section 23.23(c), and it lapses if the homestead exemption itself lapses.

A worked example

Take a Collin County homestead where last year's appraised value was $340,000.

• Cap ceiling this year: $340,000 × 1.10 = $374,000, before any new improvements.
• District's new market value: $410,000.
• Because $410,000 exceeds the $374,000 ceiling, the appraised value is capped at $374,000 — not $410,000 — regardless of the market figure.
• Suppose a protest reduces the market value to $390,000. That is still above $374,000, so the appraised value stays at $374,000. The bill does not move.
• Only a market reduction below $374,000 — the cap itself — would lower this year's appraised value.

This is the single most common reason a homeowner wins a market-value argument and sees no change on the bill: the cap, not the market figure, was already the binding constraint. A district can concede a market value on paper without conceding anything the homeowner will feel this year.

Why it still matters

The cap protects you from a number rising too fast. It does not protect you from a number that was already too high — it only delays when that number arrives.

A market reduction that does not move this year's bill still moves next year's base. The cap formula multiplies last year's appraised value, not last year's market value, so a lower appraised figure this year — even if the visible bill does not change — lowers the ceiling the district can charge up to next year. If the market stays flat while the cap keeps compounding at 10 percent a year, the two numbers eventually converge, and the market argument starts controlling the bill directly again.

When the cap doesn't help at all

• The year after a purchase. The cap first applies on January 1 of the year after the homestead exemption is granted (Section 23.23(c)) — the first year at a new appraised value is set at market, uncapped.
• New improvements. A pool, an addition, or a finished basement is added to the capped base at its own market value in the year it is discovered, on top of the 10 percent growth.
• A market value that has already fallen below the cap ceiling — at that point the cap is no longer binding, and the market argument is the whole case.

Reading the walk-through on your notice

Most district notices print the cap arithmetic directly: last year's appraised value, the 10 percent addition, any new-improvement value, and the resulting ceiling, set beside this year's market value. Recompute the ceiling — multiply last year's appraised value by 1.10, add any improvement figure the notice lists — and compare it to the market figure. Whichever is lower is what should appear as this year's appraised value. If the notice shows a higher number than that arithmetic produces, the discrepancy is itself grounds for a protest, independent of any argument about market value or comparable sales.