Introduction
This research paper examines the circuit breaker limitation on appraised value for ad valorem property tax that was enacted by the Texas Legislature in 2023 as part of SB 2 (88th Leg., 2nd C.S.). The circuit breaker provision, referred to in this paper as the “appraisal cap,” limits the maximum annual increase of the appraised value of real property other than a residential homestead to 20%, excluding the value of new improvements.¹ The appraisal cap first took effect in the 2024 tax year and applied only to properties with an appraised value of $5 million or less.² The appraisal cap statute and its constitutional authorization expire at the end of tax year 2026.³
Appraisal caps are one of three mechanisms utilized for limiting property taxes, and Texas is one of 18 states that employ an appraisal cap. Texas actually utilizes two appraisal caps — a 10% appraisal cap for homesteads and the 20% appraisal cap examined in this report.⁴ Appendix A summarizes the use of appraisal caps and other property tax limitations in the United States, and Appendix B reviews the economic literature on appraisal caps and their consequences.
