Market Value vs. Appraised Value: What Texas Law Actually Says

Open your appraisal notice and you may find two different numbers describing the same house. One is market value. The other is appraised value. That's not a typo, and the district isn't hedging its bets. They come from two different rules in the Texas Tax Code, and knowing which is which tells you a lot about what a protest can and can't do for you this year.

What is market value under Texas law?

Market value is the price your home would sell for, in cash or the equivalent, under the market conditions that actually exist at the time. Texas Tax Code §1.04(7) adds the fine print: the home has been on the open market long enough to find a buyer, both sides know how the property can be used, and nobody's desperate. No fire sale. No buyer who fell in love with the backsplash and lost all sense.

Every appraisal district in Texas has to value your home at its market value as of January 1, under Tax Code §23.01. That date matters more than people think. A kitchen remodel you finish in March shows up on next year's notice, not this one.

What is appraised value, and why can it be lower?

Appraised value is the starting point for your taxes, before exemptions come off. For most property it's simply the market value. For a home with a homestead exemption, Texas Tax Code §23.23 puts a ceiling on it, usually called the 10% homestead cap.

Here's the rule. This year's appraised value can't be more than the lower of two numbers: your market value, or last year's appraised value plus 10%, plus the value of any new improvements. A new improvement is something that adds value, like an added room or a pool. The statute says repairs and ordinary maintenance don't count, so replacing a worn-out roof shouldn't trigger it.

Round numbers make it easier. Last year your appraised value was $300,000. This year the district says your market value is $360,000. Last year's value plus 10% is $330,000, so your appraised value is $330,000, even though the market number is higher. The extra $30,000 doesn't disappear. It can catch up in later years, still limited to 10% a year.

When does the 10% homestead cap start and stop?

The cap kicks in on January 1 of the year after you first qualify for the homestead exemption. In the first tax year you qualify for the homestead exemption on a new home, there's no cap, and the district can appraise you at full market value.

It ends when neither you nor your spouse or surviving spouse qualifies anymore, which in practice usually means the house sold. The buyer starts over with no cap. If you've watched a just-sold house down the street get a big jump on its appraisal, that's often why.

The cap only covers your homestead. A rental house, a lake place or a second home doesn't get it. For tax years 2024 through 2026, Texas has a separate 20% limit, nicknamed the "circuit breaker," on most non-homestead real estate appraised at $5.32 million or less (the 2026 threshold), starting the year after you buy it. That law expires on December 31, 2026. Unless the Legislature renews it when it meets in 2027, non-homestead property won't have an annual limit for the 2027 tax year.

Why does the gap between market and appraised value matter for my protest?

Because lowering your market value doesn't always lower your tax bill. Back to the example: the district says your market value is $360,000 and your capped appraised value is $330,000. Talk the market value down to $345,000 and nothing changes this year. You're still taxed on $330,000. The bill only moves once the value drops below the capped number.

That's not the most exciting thing we'll tell you, but you should hear it before you spend an evening pulling comps. A homeowner with a big gap between those two numbers may have less to gain this year than the market value suggests.

There's still a good reason to look. The cap protects you from fast increases. It does nothing about an appraisal that's simply higher than your neighbors'. Texas Tax Code §41.41 gives you the right to protest both the value itself and unequal appraisal, and the unequal appraisal argument compares your appraised value to similar homes nearby. That's the comparison our free tool runs for you, using the appraisal district's own public records.

Last step: taxable value. It's your appraised value minus your exemptions, and it's the number each taxing unit multiplies by its tax rate. Since 2025 the school district homestead exemption has been $140,000, so the school part of your bill is figured on a number a lot smaller than anything in big print on the notice.

Quick answers

Is appraised value the same as market value in Texas? Often, but not always. Market value is what the home would sell for on January 1. Appraised value is the number taxes are based on, and for a homestead it can be lower than market value because of the 10% cap in Texas Tax Code §23.23.

How does the 10% homestead cap work in Texas? Under Texas Tax Code §23.23, a homestead's appraised value can't rise more than 10% a year, plus the value of any new improvements. The cap starts January 1 of the year after you first qualify for the homestead exemption.

Does the 10% homestead cap transfer when a home is sold? No. The cap ends when the owner who qualified for it, or their spouse or surviving spouse, no longer qualifies, which usually happens at a sale. The new owner's own cap starts the year after they first qualify for a homestead exemption.

Will lowering my market value always lower my property taxes? Not always. If your market value is already above your capped appraised value, a reduction only lowers your taxes once it brings the value below the capped amount.