To better understand if you should file an appeal with a homestead cap, you must first understand the difference between the market value and the appraised value. The appraised value is commonly referred to as a homestead cap value.
The market value is whatever the appraisal district determines your property would sell for on January 1st. When you file an appeal, you are disputing the market value of the property. The market value of the property has no limit it can increase from year to year.
Appraised Value aka Homestead Cap Value
If the property is identified as a homestead (usually by having a homestead exemption), the appraised value is the minimum of the market value, OR, the prior year's appraised value * 110%. The appraised value is also commonly referred to as the homestead cap value. With a homestead, the appraised value can only increase by a maximum of 10%. You cannot file an appeal on the appraised value, only the market value. Your taxable value is based on your appraised value.
What if your appraised value is less than your market value?
Our recommendation is to consider filing an appeal if you think you can get the value reduced to below 108% of the appraised value. As an example, if your market value is $120,000 and your appraised value is $100,000, we would recommend taking action if you think you can get the value lowered to $108,000 ($100,000 * 1.08).
Why 108% of the appraised value?
Let's assume you take no action whatsoever in the above example. This would mean your market value would remain at $120,000. Next year, let's assume that the appraisal district does not increase values, so you are noticed again at $120,000, BUT, your appraised value can only increase by a maximum of 10%. In the above example, your appraised value is $100,000, meaning next year your appraised value would automatically increase to $110,000 (the lesser of the market value, $120,000, or the prior year's appraised value $100,000 * 110%)
Now let's assume you were able to get the value reduced to $108,000 this year. Next year, if the appraisal district does not increase values, your appraised value would automatically increase to $108,000 (the lesser of the market value, $108,000, or the prior year's appraised value $100,000 * 110%).
Using our example, by taking action this year, you were able to reduce next year's appraised value by $2,000. While this may not save you money this year, it will save you money long term. This is why we recommend taking action if you get the value below 108% of the current year's appraised value.