Market value vs appraised value in Texas: the homestead cap

The cap is a limit on how much an appraisal office may increase a residence homestead's appraised value in a year: not above the lesser of the market value last determined, or the preceding year's appraised value plus 10 percent of it plus the market value of new improvements (Tax Code 23.23(a)). The statute words the two figures this way:

• (a)(1) "the market value of the property for the most recent tax year that the market value was determined by the appraisal office; or"
• (a)(2) "the sum of" (A) 10 percent of the appraised value of the property for the preceding tax year, (B) the appraised value of the property for the preceding tax year, and (C) the market value of all new improvements to the property.

The heading of Section 23.23 is "Limitation on Appraised Value of Residence Homestead," and its text does not use the words cap or capped. "Homestead cap" is the term HCAD uses.

Non-homestead property. Tax Code 23.231 sets a separate 20 percent limitation on the appraised value of certain real property other than a residence homestead, and, as of October 12, 2026, 23.231(k) states "This section expires December 31, 2026."

Tax Code 23.23(a)(2)(C) adds the market value of all new improvements to the sum in the limit, and 23.23(e) defines a new improvement as "an improvement to a residence homestead made after the most recent appraisal of the property that increases the market value of the property and the value of which is not included in the appraised value of the property for the preceding tax year." The term "does not include repairs to or ordinary maintenance of an existing structure or the grounds or another feature of the property."

Under 23.23(f), a replacement structure for one rendered uninhabitable or unusable by a casualty or by wind or water damage is not treated as a new improvement, except as (f)(2) provides. Under (f)(2), in the tax year in which the structure would have constituted a new improvement, the replacement structure is considered a new improvement only if its square footage exceeds that of the replaced structure as it existed before the casualty or damage, or its exterior is of higher quality construction and composition than that of the replaced structure.

Tax Code 23.23(c) says "The limitation expires on January 1 of the first tax year that neither the owner of the property when the limitation took effect nor the owner's spouse or surviving spouse qualifies for an exemption under Section 11.13." Section 23.23 does not use the words sold or sale.

HCAD's undated capped values FAQ (its example uses 2016) answers a question from a buyer whose home "already had a homestead exemption on it." HCAD's answer is that the property is appraised at market value for the year in which that buyer first qualifies it as a primary homestead.

Tax Code 26.09(c) starts from the appraised value of a property as shown on the appraisal roll for the taxing unit. The tax is calculated by:

• (c)(1) subtracting from the appraised value any partial exemption allowed the property owner that applies to appraised value, to determine net appraised value;
• (c)(2) multiplying the net appraised value by the assessment ratio, to determine assessed value;
• (c)(3) subtracting any partial exemption allowed the property owner from the assessed value, to determine taxable value; and
• (c)(4) multiplying the taxable value by the tax rate.

Market value is not one of those four steps. The appraised value they start from is the value determined as provided by Chapter 23 (1.04(8)).

Read with 23.23(a): when the sum in (a)(2) is the lesser figure, it is the most the appraised value may be increased to, and 26.09(c) starts from the appraised value.

HCAD's capped values FAQ, an undated page, words the same point this way: "even if the market value is reduced, it must be reduced below the capped value before the appraised value will change."