The Texas Legislature recently passed two significant bills, Senate Bill 2 (SB2) and Senate Bill 3 (SB3), that have far-reaching implications for real estate investors. These bills introduce substantial changes to the property tax system and the franchise tax system in Texas. In this blog post, we will delve into the key provisions of these bills and their potential impact on real estate investors.
Key Provisions of SB2 and SB3:
SB2, introduces several changes to the property tax system. One of the most significant changes is the reduction of the “rollback tax rate” from 8% to 3.5% for most taxing units. This new rate limits the amount by which the property tax rate can be increased without voter approval (SB2, Page 1).
SB3 increases the total revenue exemption for the franchise tax. A taxable entity is not required to pay any tax and is not considered to owe any tax for a period if the amount of the taxable entity’s total revenue from its entire business is less than or equal to $2.47 million, up from the previous $1 million limit (SB3, Page 1).
Implications for Real Estate Investors:
For real estate investors, these changes could potentially reduce the property tax burden and the franchise tax burden, thereby increasing their net income from property investments. The reduction in the rollback tax rate could make non-homestead properties, which include second homes, rental properties, and commercial properties, more attractive to investors and potentially increase their value.
Moreover, the increase in the total revenue exemption for the franchise tax could benefit real estate investors who own businesses with total revenue of less than $2.47 million. These businesses would not be required to pay any franchise tax and would not be considered to owe any franchise tax (SB3, Page 1).
The Texas SB2 and SB3 bills introduce significant changes to the property tax system and the franchise tax system that could impact real estate investors. While these changes have the potential to reduce tax burdens and increase transparency, their impact can vary depending on various factors. As always, it’s recommended to consult with a tax professional or legal advisor for specific advice.