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Capped Appraisal Value in Texas — What It Is, How It Works, and the 10% Homestead Cap

By Harsha N Hegde

What is Capped Appraisal Value?

A capped appraisal value is a legal limit on how much a property’s appraised (taxable) value can increase from one year to the next. In Texas, this limit primarily applies to residence homesteads and is different from market value (what your home would sell for on January 1).

Bottom line: the cap slows the growth of the appraised value used to calculate taxes; it does not cap your market value or your tax rates.

How Capped Appraisals Work

Capped appraisals protect homeowners from sudden spikes in tax bills when market values jump. Your appraised value for the year is the lower of:

  • This year’s market value, or
  • Last year’s appraised value + 10% of last year’s appraised value + the market value of new improvements.

For a residence homestead, the increase in appraised value is limited to 10% per year plus the value of any new improvements (Texas Tax Code §23.23). When ownership changes, the cap resets; the new owner’s cap begins the year after they first qualify the property as their residence homestead.

Non-homestead properties (2024–2026 only).

Texas added a temporary 20% cap (the “circuit-breaker” limitation) for non-homestead real property valued at or below a CPI-indexed threshold ($5,000,000 in 2024, $5,160,000 in 2025). It expires after 2026 unless extended. Homesteads already under the 10% cap are not eligible for the 20% cap.

Capped Appraisal vs. Market Value

Capped Appraisal value is an artificial limit set by your county appraisal district so as to limit annual increases in appraised values to protect homeowners from property tax spikes. On the other hand, Market Value is what your property would sell for in an open market arms-length transaction as on Jan 1st of the year.

How to use Capped Appraisal Information

  • To Calculate your taxable value. Property Taxes are based on assessed value (after caps and exemptions), not necessarily the market value shown on your notice.
  • Read the notice. Your appraisal notice usually lists market value and appraised/capped value. The difference may appear as “homestead limitation” on your tax statement.
  • Consider a protest. If you believe the market value is too high, protest it. Lowering market value can reduce future capped appraised value ceilings and risk of catch-up.

The Texas 10% homestead cap — key features

  • Requires a homestead exemption. You must qualify the property as your residence homestead.
  • Applies to appraised value, not market value. It limits increases to the appraised number used for taxes.
  • Takes effect the year after you qualify. The cap begins January 1 of the year after you first qualify the homestead (there’s a “gap” year).
  • Excludes new improvements. Additions like a pool, garage, or new room are added on top of the cap in the first year.
  • Resets on sale. A buyer does not inherit the prior owner’s cap. The new owner starts a new base year after they qualify the homestead.

How the cap is applied (formula)

For a qualifying residence homestead, your appraised value for the current year is the lower of:

  1. Current market value, or
  2. Last year’s appraised value + 10% (of last year’s appraised value) + market value of new improvements.

Example scenario (Texas homestead)

  • Year 1 — You buy a home. Market value & initial appraised value: $300,000.
  • Year 2 — Market value jumps to $350,000. This is the first year you have a homestead exemption, so the 10% cap is not yet active. Appraised value = $350,000.
  • Year 3 — Market value rises to $400,000. The cap is now active. Maximum appraised value = prior year appraised value $350,000 × 1.10 = $385,000 (assuming no new improvements). You pay taxes on $385,000, not $400,000.

When will my 10% cap kick-in?

Your 10% cap begins the 2nd Jan 1st after you move in. Use this handy calculator to find out:

7 things to remember about capped appraisal values:

  1. Limitations take effect one year after you receive your Homestead Exemption.
  2. Limitations do not apply to new improvement added in the same year.
  3. Limitations are removed when property is sold.
  4. Limitations are indicated on the Notice as “Capped Value” or “Homestead Limitation Adjustment”
  5. All applicable exemptions are subtracted from the Capped Value instead of the Market Value.
  6. Capped Value - Exemptions = Taxable Value.
  7. Capped Value is not a lifetime limitation.

About the Author

Harsha N Hegde is the founder of squaredeal.tax, a DIY platform that helps Texas homeowners protest unfair property tax assessments. He has helped thousands of Texas homeowners save money using comps-based evidence and practical guidance.

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