What is a Capped Appraisal Value in Texas Property Tax Law?
A capped appraisal value (also called assessed value or limited value) is the maximum taxable value your homestead can be assigned in a given year under Texas law. Under Texas Tax Code Section 23.23, if you have a homestead exemption, your assessed value cannot increase by more than 10% per year—regardless of how much your home's market value rises.
While Texas does not have a statewide property tax, local governments in the state rely heavily on property taxes to fund services such as schools, fire departments, and libraries. But for homeowners like you, tax bills can significantly strain your finances.
One way that Texas attempts to control property taxes is by capping increases on a home's appraisal value. Even in a red-hot real estate market, by law, the appraisal value of your primary residence cannot increase by more than 10% in a single year. However, to truly understand how capped appraisal values work, you must first learn how property taxes are calculated under Texas law.
The Texas Property Tax Calculation Process
Every Texas county has an appraisal district responsible for determining the assessed value for every tax-paying parcel within its borders. When calculating your property taxes, your home’s assessed value is multiplied by the tax rate for individual tax districts, such as school districts and city governments. Therefore, a lower assessed value on your home amounts to a lower property tax bill.
How Appraisal Values Are Determined
Your local appraisal district is, by law, required to assess your home at its market value as of January 1 of each year. Officially, market value means the price you would receive for your home after listing it for a reasonable time on the open market.
But because appraisal districts need to determine a value for every property in the county, they often use mass-appraisal techniques based on public records to estimate property values.
The problem is that these techniques often fail to properly account for your home’s distinct characteristics or are based on incorrect data. And since an improperly-inflated assessed value results in your tax bills being too high, many Texas homeowners end up paying more than their fair share of property taxes.
The Homestead Exemption
Individual Texas taxing districts can offer homeowners exemptions on their homestead (principal residence). For example, every school district must provide a $25,000 per year exemption on primary residences or "homesteads." There are other homestead exemptions allowed for homeowners with disabilities or over the age of 65.
You can only qualify for a homestead exemption on your principal residence. If you use another location as your primary residence, whether in Texas or another state, you cannot receive any homestead exemptions on your property taxes. You also must own the home as an individual, not through a business entity. Finally, you must apply for any exemptions because they are not automatically granted.
How the Homestead Cap Works
The good news is that if you qualify for a homestead exemption, the Texas Tax Code caps the amount the appraisal district can increase your assessed value each year. This cap is 10% above last year’s assessed value, regardless of market conditions.
In fast-growing areas, actual home values can increase by more than 10% in a year. Additionally, new development plans may make your property especially valuable. But so long as you qualify for a homestead exemption, you are protected by capped appraisal value. Your assessed value will not increase by more than 10% over the last year.
However, there is one crucial exception. Be aware that if you make new improvements to your home that affects its market value, the boost from the improvements can be added to your assessed value. Improvements do not mean ordinary maintenance or upkeep on an existing house.
So, replacing an old roof is not considered an improvement for capped appraisal value. But building an addition on the back of your home that adds square footage, a new bedroom, and a new bathroom may bump your home's market value by more than 10%. And the appraisal district is allowed to consider these improvements when determining your assessed value.
What Does Capped Value Mean on Property Taxes?
When you see "capped value" on your property tax statement or Notice of Appraised Value, it refers to the assessed value after the 10% homestead cap has been applied. This is the value your tax bill is actually based on (before exemptions are subtracted).
Multi-Year Worked Example
Here's how the 10% cap protects a homeowner over three years in a rapidly appreciating market:
| Year | Market Value | 10% Cap Limit | Assessed (Capped) Value | Tax Savings from Cap |
|---|---|---|---|---|
| Year 1 (homestead established) | $350,000 | N/A | $350,000 | $0 |
| Year 2 (market rises 20%) | $420,000 | $385,000 | $385,000 | $35,000 |
| Year 3 (market rises 10%) | $462,000 | $423,500 | $423,500 | $38,500 |
In this scenario, by Year 3 the homeowner's assessed value is $38,500 lower than the market value. At a typical 2% tax rate, that translates to roughly $770 per year in tax savings from the cap alone—and the savings grow each year the gap widens.
Key takeaway: The homestead cap is cumulative. The longer you own your home and keep your homestead exemption active, the more the cap saves you.
What Does "HS Cap Loss" Mean on Your Tax Statement?
When reviewing your property tax statement or Notice of Appraised Value, you may see a line item labeled "HS Cap Loss." This represents the difference between your property's appraised (market) value and the lower assessed (capped) value that results from the 10% homestead cap.
HS Cap Loss = Appraised Value - Assessed Value
For example, if your home's appraised value is $500,000 but the 10% cap limits your assessed value to $440,000, your HS Cap Loss would be $60,000. This means you are saving taxes on $60,000 worth of value thanks to the homestead cap.
A larger HS Cap Loss indicates that the cap is working harder in your favor—your home's market value has grown faster than the 10% annual limit allows your assessed value to increase.
Key points about HS Cap Loss:
- It only applies to properties with a homestead exemption
- It resets to zero when ownership changes
- A growing HS Cap Loss means the cap is protecting you from larger tax increases
- Even with a large HS Cap Loss, you should still protest your appraised value to keep future assessed values lower
Let Ballard Property Tax Protest Help You Lower Your Property Taxes
If the assessed value of your home went up dramatically from last year, filing a property tax protest will allow you to challenge the assessment. The appraisal district may have failed to evaluate current market conditions or made a mistake based on incorrect data. As a homeowner, you are entitled to a hearing before an Appraisal Review Board (ARB) to protest your property’s assessed value.
While this might sound intimidating, you do not have to navigate the tax protest process alone. The professionals at Ballard Property Tax Protest have years of experience winning lower taxes for Texas homeowners. Sign up for our risk-free services today!
Frequently Asked Questions
What does capped value mean on property taxes?
Capped value (also called assessed value or limited value) is the maximum amount your homestead property can be taxed on after applying the 10% annual cap. Under Texas Tax Code Section 23.23, your assessed value cannot increase by more than 10% per year over the prior year's assessed value, plus the value of any new improvements.
What is the 10% homestead cap in Texas?
The 10% homestead cap limits how much your assessed property value can increase each year if you have a homestead exemption. Even if your home's market value jumps 20% or more, the value used to calculate your taxes can only rise by 10% over last year's assessed value. The cap does not apply to new improvements or non-homestead properties.
What does HS Cap Loss mean on my tax statement?
HS Cap Loss is the difference between your property's appraised (market) value and the lower assessed (capped) value. For example, if your appraised value is $500,000 but the 10% cap limits your assessed value to $440,000, your HS Cap Loss is $60,000. A larger HS Cap Loss means the cap is saving you more money.
Does the 10% cap apply to all properties in Texas?
No. The 10% cap only applies to properties with an active homestead exemption. Rental properties, second homes, commercial properties, and vacant land do not qualify. Non-homestead residential properties had a temporary 20% cap that expires December 31, 2026 unless extended by the Legislature.
Should I still protest my property taxes if my value is capped?
Yes. You should protest the market (appraised) value even if your assessed value is capped. A lower appraised value means the cap has more room before it catches up, keeping your future tax bills lower. If you ever sell or lose your homestead exemption, the market value becomes your new starting point.