When it comes to buying properties, there are certain opportunities to cut costs and save money (like negotiating a better sale price or getting a deal on contracting services). But there’s one area where costs are inevitable and non-negotiable – property tax.
Property taxes are a fixed cost, which means you will pay the property tax rate of the area where your property is located for the entirety of your property ownership. Therefore, it’s important that, before you invest in property in the Dallas/Fort Worth area, you understand DFW property tax rates and what they mean for your investment.
How Do Property Taxes Work?
Property taxes are determined by taking the mill levy of the area (the total assessed value of property divided by the amount of tax revenue needed by the government in a given year) and multiplying it by the assessed value of a property (each property is reassessed annually to ensure an accurate value).
There are multiple ways to assess the value of a property, but the bottom line is: the higher the value of your property — and the higher the overall value of property in your area — the more you can expect to pay in property taxes.
Why Property Taxes Are a Concern for Investors
Many investors approach property taxes with concern, and they have a good reason: property taxes are one area you have zero control over when you own property, and property tax rates can vary greatly from year to year.
So, if the local government decides it needs more money to support the area in any given year, it can (and will) raise property taxes to drive those funds.
This variability can add a significant cost to owning property, and if your rental properties have tight profit margins, rising property taxes can cause your rental properties to go into the red, costing you more money than they make.
That’s why it’s important to factor in property taxes — and how they may change — when assessing the value and profitability of a potential rental property.
What You Need to Know About Dallas Property Tax Rates
In terms of taxes, Texas is one of the best states you can live in: there’s no personal income tax, and there’s no residential real estate transfer tax (one of only 12 states in the country). But property values in certain areas are on the rise — and as such, so are property taxes.
According to a report by Dallas News, homeowners with properties valued between $100,000 and $250,000 saw appraised values rise 12% from 2015 to 2016, while homes valued between $250,000 and $500,000 saw a 10% increase in that same time period (more expensive homes saw less of an increase; homes between $500,000 to $1 million saw an 8% increase, while homes valued at over $1 million saw an increase of 6.7% or less — almost half the increase of lesser-valued homes).
Now, rising property values are a good thing: it means an asset is worth more money. But it also means that property taxes for that property will increase according to the new value.
The Future of Property Taxes in Dallas
Recent popularity in the Dallas real estate market — and the resulting rising property taxes — has many worried that property taxes will continue to rise in the DFW area. But thanks to recent legislature, that won’t be the case.
The Texas Senate recently passed legislature to help protect Texas homeowners and investors from rising property taxes. SB2 is the first step in property tax reform that requires a vote if a government wants to grow more than 4.9% in any given year. That puts more control back in the citizens’ hands and will help to decrease property tax spikes in the future.
While the bill was controversial (opponents argue it doesn’t do enough to lower current property taxes or cap appraisals), most consider it a step in the right direction in controlling property taxes in the Dallas/Fort Worth and great Texas area.
Who Is Responsible for Paying Property Taxes?
As a homeowner who resides in their own property, the question “who is responsible for property taxes?” is pretty straightforward. But when it comes to owning rental properties, some investors aren’t sure. Do you pay property taxes? Does your lender? What about your property manager?
Here’s the simple answer: if you own a property, you’re responsible for paying property taxes.
But as an investor, if you’re making income from your rental properties, property taxes are considered a write-off, and you can deduct them from your taxable income when tax season rolls around, which will help you recoup some of that cost.
2016 Property Taxes in Dallas/Fort Worth
Here are the 2016 property tax rates for the major cities and towns in the Dallas/Fort Worth area (more than 100,000 citizens):
| City/Town | Total Property Tax Rate | Municipal Property Tax Rate | School Property Tax Rate | County Property Tax Rate |
| Dallas | 2.72% | .78% | 1.28% | .66% |
| Fort Worth | 2.81% | .84% | 1.35% | .63% |
| Arlington | 2.66% | .64% | 1.39% | .63% |
| Plano | 2.21% | .48% | 1.44% | .29% |
| Garland | 2.82% | .70% | 1.46% | .66% |
| Irving | 2.70% | .59% | 1.45% | .66% |
| Grand Prairie | 2.92% | .67% | 1.60% | .66% |
| McKinney | 2.48% | .57% | 1.62% | .29% |
| Mesquite | 2.80% | .69% | 1.46% | .66% |
| Frisco | 2.20% | .45% | 1.46% | .29% |
| Carrollton | 2.65% | .60% | 1.39% | .66% |
| Denton | 2.47% | .68% | 1.54% | .25% |
| Richardson | 2.67% | .63% | 1.39% | .66% |
| Lewisville | 2.10% | .44% | 1.42% | .25% |
How to Make Property Taxes Work for You
As we mentioned earlier, there’s no way to avoid paying property taxes. As an investor, you don’t have much control over how and when they change. But by educating yourself on the DFW market, understanding Texas property tax law, and leaving wider profit margins in your rental properties, you can stay one step ahead of property taxes and ensure your properties continue to generate profits for your real estate investment business for years to come.
If you're thinking about investing in property in the Dallas/Fort Worth area, make sure to get in touch with LEAP Property Management. Our extensive experience managing rental properties in the Dallas/Fort Worth area will be an invaluable asset to your investment. Contact us today.
