Question 1
When a Texas real estate licensee represents a buyer purchasing a home in a neighborhood subject to a Tax Increment Reinvestment Zone (TIRZ), how should the licensee advise the buyer regarding the effect of the TIRZ on the buyer's property tax bill?
- A. The buyer will pay zero property taxes to the city for the duration of the TIRZ because all city tax revenue is diverted to the zone fund.
- B. The buyer pays full property taxes at the normal rate; the incremental tax revenue above the base-year value is allocated to the TIRZ fund rather than the general taxing unit fund, but the buyer's total tax liability is unchanged. ✓ Answer
- C. TIRZ designation entitles the buyer to a permanent 10% reduction in the assessed value of the property.
- D. The buyer is exempt from county taxes but must pay double the school district rate to compensate for city revenue diverted to the TIRZ.
Explanation: A Tax Increment Reinvestment Zone (TIRZ) does not reduce a property owner's tax bill. The owner pays taxes at the full applicable rate. The mechanism works by freezing the tax base at a base-year value; as property values increase, the additional 'increment' of tax revenue above the base is deposited into a TIRZ fund for zone improvements. The buyer's total tax obligation is unaffected by the TIRZ designation itself.
Question 2
A Texas property owner who is 70 years old and qualifies for the over-65 homestead exemption wishes to defer payment of property taxes under Texas Tax Code Section 33.06. Which of the following correctly describes a key consequence of filing a tax deferral affidavit?
- A. The taxes are permanently forgiven and will not be assessed in future years.
- B. The deferred taxes become a lien against the property and accrue interest at 8% per year, becoming due when the property is no longer the owner's homestead. ✓ Answer
- C. The property is removed from the county tax rolls for the duration of the deferral.
- D. The taxing unit may not sell the property at a tax foreclosure sale, and no interest accrues during the deferral period.
Explanation: Under Texas Tax Code Section 33.06, a qualifying homeowner may defer or abate collection of delinquent property taxes on a residence homestead. The taxes are not forgiven and the tax lien remains on the property. Deferred taxes accrue interest during the deferral period at 5% per year, and the deferred taxes and accrued interest generally become due after the property no longer qualifies as the owner's residence homestead, subject to statutory timing and notice rules.
Question 3
Under Texas Tax Code Section 11.252, a motor vehicle used for the production of income and held for sale in the ordinary course of business may qualify for the freeport exemption. However, for real property, what category of tangible personal property is most classically associated with the Texas freeport exemption under Section 11.251?
- A. Inventory that is in transit through Texas and will leave the state within 175 days of entering. ✓ Answer
- B. Agricultural equipment permanently affixed to a Texas farm and used for crop production.
- C. Residential personal property of a homeowner who qualifies for an over-65 exemption.
- D. Commercial real estate improvements located within a designated enterprise zone.
Explanation: Texas Tax Code Section 11.251 exempts from ad valorem taxation certain tangible personal property — goods, wares, merchandise, ores, and certain aircraft parts — that are acquired in or imported into Texas for the purpose of being forwarded out of the state, provided they depart Texas within 175 days of entry. This is the freeport exemption; it applies to personal property in transit, not to real property improvements or homestead items.
Question 4
A Texas real estate licensee is helping a buyer purchase a home. The seller discloses that a Notice of Lis Pendens has been filed against the property related to a delinquent property tax suit. Which of the following best describes the significance of this lis pendens to the buyer?
- A. It has no practical effect because Texas property taxes are always discharged at closing.
- B. It provides constructive notice that the property is subject to pending tax foreclosure litigation, and the buyer takes title subject to that lawsuit. ✓ Answer
- C. It merely indicates the seller owes back taxes, which the title company will pay from escrow with no risk to the buyer.
- D. It triggers an automatic TREC disclosure requirement that pauses the transaction for 10 days.
Explanation: A Notice of Lis Pendens recorded in the real property records provides constructive notice to the world that the described property is the subject of pending litigation — in this case a tax foreclosure suit. A buyer who purchases the property after the lis pendens is filed takes title subject to the outcome of that lawsuit, which could result in the buyer losing the property to a tax foreclosure judgment.
Question 5
Under Texas Tax Code Section 23.46, when land that has been appraised under a 1-d agricultural use valuation is sold or the use changes, additional taxes — sometimes called rollback taxes — may be triggered. To how many years of back taxes is the rollback period limited under agricultural 1-d valuation (as opposed to 1-d-1 open-space)?
- A. Three years.
- B. Five years. ✓ Answer
- C. Seven years.
- D. Ten years.
Explanation: Under Texas Tax Code Section 23.46 for 1-d agricultural-use appraisal, a sale or diversion to nonagricultural use triggers an additional tax equal to the difference between taxes imposed under agricultural appraisal and the taxes that would have been imposed at market value for each of the five years preceding the year of sale or diversion, plus applicable interest. This is distinct from the 1-d-1 open-space rollback period, which is generally three years under current law.
Question 6
Texas does not have a state income tax. When a Texas resident sells investment real estate at a gain, which tax authority has primary jurisdiction over any capital gains tax owed on that transaction?
- A. The Texas Comptroller of Public Accounts, under the Texas franchise tax rules applicable to individuals.
- B. The Texas Real Estate Commission, which reports gains to the state revenue department.
- C. The federal government through the Internal Revenue Service, because Texas imposes no state income or capital gains tax. ✓ Answer
- D. The county appraisal district, which adjusts the property's tax basis and collects a gain assessment.
Explanation: Texas has no state income tax and therefore imposes no state-level capital gains tax on real estate sales. Any capital gains tax owed by a Texas resident on the sale of investment real estate is governed exclusively by federal law and collected by the IRS. The Texas Comptroller's franchise tax applies to entities, not to individual capital gains from real estate sales.