Texas’s Commercial Property Tax Cap Expires After 2026, and Owners Should Plan Now
By Hari Nathan Kalyan, Managing Attorney, Warren Kalyan.
Five Key Takeaways
- The circuit breaker cap on commercial property values expires after the 2026 tax year. Texas Tax Code Section 23.231 limits year over year appraised value increases to 20 percent for smaller, non homestead commercial property, but only for the 2024, 2025, and 2026 tax years.
- The dollar threshold has moved every year and is not a flat 5 million dollars. It covered property valued at 5 million dollars or less in 2024, 5.16 million dollars or less in 2025, and 5.32 million dollars or less in 2026, indexed annually by the Comptroller.
- Starting with the 2027 tax year, appraisal districts return the property to full market value. Owners whose property has appreciated faster than 20 percent a year during the cap can see the entire remaining gap close in a single step rather than phasing in gradually.
- The Legislature cannot fix this in time even if lawmakers wanted to. The next regular session convenes January 12, 2027, after the 2027 appraisal notices are already calculated under current law.
- Deals, leases, and entity underwriting closing before year end should build the expiration in now. Buyers, sellers, landlords with tax pass throughs, and anyone forming a single asset entity should not rely on a capped number as a baseline for 2027.
If you own a commercial building in Texas worth less than about five million dollars, there is a good chance your appraised value has been growing slower than the actual market for the last three years. That is not an accident. It is a temporary state law, and it is about to end.
What the Circuit Breaker Cap Actually Does
In 2023, the Texas Legislature passed Senate Bill 2, which added a circuit breaker limitation to the Tax Code at Section 23.231. The provision caps the year over year increase in appraised value at 20 percent for non homestead real property valued under a set threshold. That threshold is indexed by the Comptroller and has moved every year: 5 million dollars or less for the 2024 tax year, 5.16 million dollars or less for 2025, and 5.32 million dollars or less for 2026.
The cap covers most of what small and midsize business owners hold directly, including retail strip centers, small offices, warehouses, and other commercial buildings that do not qualify for the homestead exemption.
Why the Expiration Catches Owners By Surprise
The catch is that the cap was written as temporary from the start. It applies only to the 2024, 2025, and 2026 tax years. Appraisal districts across the state, including Travis, Harris, Tarrant, Brazoria, and Lubbock counties, all confirm the same three year window on their own websites. Starting with the 2027 tax year, the cap disappears, and appraisal districts return the property to full market value.
For any owner whose property has appreciated faster than 20 percent a year during this run up in Texas real estate values, which describes a lot of commercial property in this state, the taxable value can jump the entire remaining gap in a single year rather than phasing in gradually.
Why the Legislature Cannot Fix This in Time
This matters because the Legislature cannot fix it even if lawmakers wanted to. The next regular session does not convene until January 12, 2027, which is after the 2027 appraisal notices are already calculated under current law. Whatever relief businesses get in a future session will not arrive in time to soften the first year of the reset.
Why this deserves attention now, months before those notices go out, comes down to planning. A business that has budgeted around a capped, artificially low property tax number for three straight years can be caught flat footed by a real one time jump, and cash flow planning for 2027 should start well before December.
What We Would Do Before Year End
Model out what your 2027 appraised value would likely be without the cap. Compare that number to what shows up on this year's notice. The size of that gap tells you how large a step up to expect, and whether it changes your debt service coverage or your reserve planning.
If a sale, refinance, or recapitalization is already under discussion, timing matters on both sides of the table. A buyer underwriting a deal off a seller's trailing tax expense, when that expense reflects a capped year, can end up with a materially wrong number for year two of ownership. Sellers should disclose the pending expiration as part of diligence, and buyers should ask about it directly rather than assuming recent tax bills are a reliable baseline.
Review any leases with tax pass throughs or expense stops, particularly triple net leases. Tenants can see a real swing in their operating expense recoveries in 2027, and landlords who get ahead of that conversation now will have an easier time than those who let tenants find out from an invoice.
If you formed a single asset entity to hold the property, or you are structuring a new purchase, build the expiring cap into your underwriting and reserve assumptions now. Waiting until the notices arrive next January leaves little room to adjust.
The Reset Is Not Automatically a Tax Increase
None of this means the sky is falling. A step up in appraised value is not automatically a step up of the same size in the tax bill, since rates and exemptions still play a role, and owners always retain the right to protest an appraisal they believe overstates market value. But the circuit breaker cap has quietly kept a lot of Texas commercial property tax bills lower than the market would otherwise suggest, and businesses that have gotten used to that number should not assume it holds for another year.
Our team at Warren Kalyan works with owners, buyers, and sellers of commercial property across Texas, and we are already having this conversation with clients who are closing deals, renewing leases, or refinancing before year end. The circuit breaker cap was always meant to be temporary. Businesses that plan for its expiration now will be in a far better position than the ones who wait for the appraisal notice to arrive.
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General information only, not legal advice for your specific situation.