In Texas, the Tax Line Decides the Deal

Everyone loves Texas for the same headline reason: no state income tax. It's one of the best things about doing business here, and it's a real advantage. But there's a flip side that far fewer people underwrite with the care it deserves. In Texas, property taxes carry the load that income taxes carry elsewhere. And in commercial real estate, the tax line is quietly where a deal lives or dies. Right now, that line is about to move.

How the System Actually Works

Start with how the system works, because it's more central here than almost anywhere. Property taxes are how local governments in Texas fund themselves, a fact written so deeply into the state that its constitution bans an income tax outright. In most urban Texas markets, roughly two-thirds of all property is commercial, per reporting from El Paso Matters. That means commercial owners carry a large share of the load, and the number the appraisal district assigns to your building is one of the biggest inputs in whether it performs.

Rising Because Texas Is Winning

Those numbers are climbing, because Texas keeps winning. Strong population, job, and income growth put steady upward pressure on assessed values across the state, and appraisal districts are moving with the market. In Tarrant County alone, commercial property values rose 17.4% in 2026, according to analysis from O'Connor. Read that the right way. Assessments are rising because the fundamentals are rising. The same growth that makes this market great is the thing pushing the tax bill up.

The Cap Nobody's Pricing

Here's the part almost nobody is pricing. During the 2023 property tax relief fight, the Legislature created a temporary cap on how much the taxable value of eligible commercial property can rise each year. For 2026, that circuit breaker applies to qualifying non-homestead property valued at $5.32 million or less, per CBIZ and other tax advisors tracking it. The catch is in the word temporary. The cap is currently set to expire on December 31, 2026, unless lawmakers renew it. If it lapses, appraisal districts can move taxable values back toward the higher market values already sitting on the rolls. Owners who watched their taxable value rise slowly under the cap could face a much larger jump in a single year, in 2027.

Reassessment on Sale

Layer on two more Texas realities. First, the appraisal calendar is unforgiving. Notices generally land in April, and the window to protest is short, usually until mid-May or roughly 30 days from the notice. Miss it and an inflated value can lock in for the year. Second, and most important for anyone buying, Texas reassesses on sale. The capped, comfortable tax figure a seller shows you is tied to their basis, not yours. Close the deal, and the taxable value can reset toward your purchase price. Underwrite the seller's tax line and you're underwriting a number that changes the day you own it.

A Knowable Cost Is an Edge

This is exactly the kind of variable we treat as core, not boilerplate. We underwrite the tax line as hard as the rent roll, because in Texas it moves the returns as much as the rent does. That means knowing the appraisal districts one by one, because they behave differently from county to county. It means modeling reassessment-on-sale into year one rather than being surprised by it. And it means underwriting the post-cap world now, so a deal that pencils on 2026's capped math still works if 2027 resets.

None of this is a reason to be down on Texas taxes. It's the opposite. The cost is real, but it's knowable, and knowable costs are where a local operator turns diligence into advantage. Appraisal districts overreach. Values get set high. Protests, handled by people who know the local board and the local comps, recover real dollars. A tax line that a distant buyer treats as a fixed input is, for us, a place to create value and a place to avoid a mistake. That edge doesn't come from scale. It comes from being close enough to the ground to know how each county actually assesses.

Price the Tax Line Honestly

The cap expires at the end of this year. The deals getting signed right now on last year's tax math will feel that in 2027, and some of them will feel it hard. We'd rather price the tax line honestly today and be the buyer who isn't surprised in eighteen months. In a state this good to invest in, the discipline that separates the winners isn't finding the deal. It's underwriting the one variable everyone else treats as fine print.