How is a hurricane-damaged Texas home reappraised for property taxes after repairs?

Plain-English summary

After Hurricane Ike struck the Texas coast in 2008, the Galveston County Criminal District Attorney asked how to appraise a damaged residence homestead for property taxes once it was repaired or rebuilt. The Attorney General walked through three scenarios under Tax Code section 23.23, which caps how much a homestead's appraised value can rise year to year (generally the prior year's value plus 10 percent plus the market value of any "new improvements").

The pivotal fact was whether the storm had "rendered" the home "uninhabitable or unusable." If it had, a special provision, subsection (f), applied. Under subsection (f), a replacement structure is not treated as a "new improvement," so rebuilding does not by itself increase the appraisal, and the property is valued from the appraised value it "would have had" the preceding year had the damage not occurred. The one exception: the replacement counts as a new improvement if its square footage exceeds the old structure's, or its exterior is of higher-quality construction and composition. If the home was not rendered uninhabitable or unusable, subsection (f) did not apply, and the answer depended on subsection (e): work that qualifies as "repairs to" an existing structure is excluded from the definition of "new improvement," while work that goes beyond repair is a "new improvement" added on top of the capped value. The opinion stressed that whether any given renovation is a "repair" or a "new improvement" is a question of fact it could not answer, and it noted the statute does not define "uninhabitable" or "unusable," leaving the appraisal district to make the first call on what value a property "would have had" absent the damage.

Currency note

This opinion was issued in 2010. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The dollar figures and the 2009 and 2010 tax years discussed here are illustrative and historical. Verify current law before relying on any specific rule, formula, or figure mentioned here.

What the opinion meant for those who asked

The Galveston County District Attorney (what the opinion held): The opinion concluded that the 2010 appraisal of an Ike-damaged homestead was governed by section 23.23(f) if the structure was rendered uninhabitable or unusable, and otherwise by the repair-versus-new-improvement distinction in section 23.23(e).

Appraisal districts (what the opinion held): The opinion explained that where subsection (f) applied, the district first determined the value the property "would have had" the preceding year without the damage, then ran the subsection (a) cap calculation, treating the replacement as a new improvement only if it was larger or had a higher-quality exterior. The opinion noted the statute did not define "uninhabitable" or "unusable" and that the district makes the first determination of the "would have had" value.

Homeowners rebuilding after the storm (what the opinion held): The opinion described how a rebuilt home that was uninhabitable generally would not see its appraisal jump from the rebuild alone, unless the owner increased square footage or upgraded the exterior quality.

Anyone with a partially damaged (still habitable) home (what the opinion did not decide): Whether particular renovations counted as "repairs" or a "new improvement" was a fact question the opinion said was inappropriate for the opinion process.

Common questions

Did rebuilding a hurricane-destroyed home raise its taxable value?
Under section 23.23(f), generally not by itself. A replacement structure for a home rendered uninhabitable or unusable was not treated as a "new improvement," so the rebuild alone did not increase the appraisal, and the property was valued from what it would have been worth the prior year absent the damage.

When does a rebuild count as a "new improvement" anyway?
The opinion pointed to subsection (f)(2): the replacement is a new improvement if its square footage exceeds the replaced structure's, or its exterior is of higher-quality construction and composition than the old one.

What if the home was only partially damaged and still livable?
Then subsection (f) did not apply. The opinion said the result depended on whether the work was "repairs" (excluded from "new improvement" by subsection (e)) or a "new improvement" added on top of the capped value, and that this was a fact question.

What is the basic appraisal cap for a homestead?
Section 23.23(a) generally limits a homestead's appraised value for a year to the lesser of its market value, or the prior year's appraised value plus 10 percent plus the market value of all new improvements.

Background and statutory framework

Tax Code section 23.23(a) caps the appraised value of a residence homestead for a tax year at the lesser of the property's market value or the sum of the preceding year's appraised value, 10 percent of that value, and the market value of all new improvements. Tex. Tax Code Ann. § 23.23(a) (West Supp. 2010); Tex. Tax Code Ann. § 23.23(a)(2)(C). Subsection (e) defines "new improvement" and, after a 2007 amendment that added the words "repairs to or," excludes repairs to or ordinary maintenance of an existing structure from that definition. Tex. Tax Code Ann. § 23.23(e). A 2003 opinion had read the older version of subsection (e) to treat post-disaster repairs as "new improvements," a construction the opinion noted had been superseded by the 2007 amendment. Tex. Att'y Gen. Op. No. GA-0091 (2003). In 2009, responding to coastal storm damage, the Legislature added subsection (f), which provides that a replacement structure for a home rendered uninhabitable or unusable by casualty, wind, or water damage is not treated as a new improvement, sets the prior-year value at what the property "would have had" without the damage, and counts the replacement as a new improvement only if it is larger or of higher-quality exterior construction. Tex. Tax Code Ann. § 23.23(f) (West Supp. 2010); Tex. Tax Code Ann. § 23.23(f)(1)-(2) (West Supp. 2010).

The opinion applied the usual rule that statutory language is read by its plain meaning unless that leads to absurd results, looking to the words the Legislature used. City of Marshall v. City of Uncertain, 206 S.W.3d 97, 105 (Tex. 2006); Hernandez v. Ebrom, 289 S.W.3d 316, 318 (Tex. 2009). Running the three scenarios the request posed, the opinion concluded that a still-habitable but partially damaged home fell under subsection (e), where the repair-versus-improvement line is a fact question, while an uninhabitable home fell under subsection (f), whose formula keys off the value the property "would have had" the preceding year. Because the statute did not define "uninhabitable" or "unusable" and the appraisal district is charged with appraising property in the district, the opinion said the district makes the first determination of that hypothetical value. Tex. Tax Code Ann. § 6.01(b) (West 2008).

Citations

Statutes:

• Tex. Tax Code Ann. § 23.23(a) (West Supp. 2010)
• Tex. Tax Code Ann. § 23.23(a)(2)(C)
• Tex. Tax Code Ann. § 23.23(e)
• Tex. Tax Code Ann. § 23.23(f) (West Supp. 2010)
• Tex. Tax Code Ann. § 23.23(f)(1)-(2) (West Supp. 2010)
• Tex. Tax Code Ann. § 6.01(b) (West 2008)

Cases and opinions:

• City of Marshall v. City of Uncertain, 206 S.W.3d 97, 105 (Tex. 2006)
• Hernandez v. Ebrom, 289 S.W.3d 316, 318 (Tex. 2009)
• Tex. Att'y Gen. Op. No. GA-0091 (2003)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0805
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2010/ga0805.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

September 30, 2010

The Honorable Kurt Sistrunk Opinion No. GA-0805
Galveston County Criminal District Attorney
600 59th Street, Suite 1001 Re: Proper method of appraising the value of
Galveston, Texas 77551-4137 residence homesteads damaged by Hurricane Ike
in 2008 (RQ-0851-GA)

Dear Mr. Sistrunk:

You ask about the proper method of appraising the value of residence homesteads damaged by Hurricane Ike in 2008.[1]

Section 23.23 of the Tax Code provides, in relevant part:

(a) Notwithstanding the requirements of Section 25.18 and regardless of whether the appraisal office has appraised the property and determined the market value of the property for the tax year, an appraisal office may increase the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of:

(1) the market value of the property for the most recent tax year that the market value was determined by the appraisal office; or

(2) the sum of:

(A) 10 percent of the appraised value of the property for the preceding tax year;

(B) the appraised value of the property for the preceding tax year; and

(C) the market value of all new improvements to the property.

TEX. TAX CODE ANN. § 23.23(a) (West Supp. 2010). Thus, under this provision, a particular residence homestead may not be appraised for a particular tax year at an amount that exceeds by more than ten percent of the property's appraised value for the preceding tax year plus "the market value of all new improvements to the property." Id. § 23.23(a)(2)(C).

Subsection (e) of section 23.23 provides the following:

(e) In this section, "new improvement" means an improvement to a residence homestead made after the most recent appraisal of the property that increases the market value of the property and the value of which is not included in the appraised value of the property for the preceding tax year. The term does not include repairs to or ordinary maintenance of an existing structure or the grounds or another feature of the property.

Id. § 23.23(e). Prior to its 2007 amendment, subsection (e) provided that the term "new improvement" does not include "ordinary maintenance of an existing structure or the grounds or another feature of the property." Tex. Att'y Gen. Op. No. GA-0091 (2003) at 2; see Act of June 1, 1997, 75th Leg., R.S., ch. 1039, § 47, 1997 Tex. Gen. Laws 3897, 3918. A 2003 opinion of this office declared that the term "'new improvement' includes repairs made following a natural disaster because the repairs are not 'ordinary maintenance.'" Tex. Att'y Gen. Op. No. GA-0091 (2003) at 8. The Eightieth Legislature amended subsection (e) to its present version by adding the words "repairs to or." See Act of May 22, 2007, 80th Leg., R.S., ch. 1355, 2007 Tex. Gen. Laws 4644, 4644-45. As a consequence, under the amended version of subsection (e), the term "new improvement" does not "include repairs ... to an existing structure."

In 2009, because of extensive damage to structures in several coastal counties, the Legislature amended subsection (f), which now provides:

(f) Notwithstanding Subsections (a) and (e) and except as provided by Subdivision (2), an improvement to property that would otherwise constitute a new improvement is not treated as a new improvement if the improvement is a replacement structure for a structure that was rendered uninhabitable or unusable by a casualty or by wind or water damage. For purposes of appraising the property under Subsection (a) in the tax year in which the structure would have constituted a new improvement:

(1) the appraised value the property would have had in the preceding tax year if the casualty or damage had not occurred is considered to be the appraised value of the property for that year, regardless of whether that appraised value exceeds the actual appraised value of the property for that year as limited by Subsection (a); and

(2) the replacement structure is considered to be a new improvement only if:

(A) the square footage of the replacement structure exceeds that of the replaced structure as that structure existed before the casualty or damage occurred; or

(B) the exterior of the replacement structure is of higher quality construction and composition than that of the replaced structure.

TEX. TAX CODE ANN. § 23.23(f) (West Supp. 2010). As a result of the enactment of subsection (f), a residence homestead that has been "rendered uninhabitable or unusable by a casualty or by wind or water damage" is treated for appraisal purposes in a special manner.

In construing a statute, our primary objective, like that of the courts, is "to ascertain and give effect to Legislature's intent." City of Marshall v. City of Uncertain, 206 S.W.3d 97, 105 (Tex. 2006). Legislative intent is best "expressed by the statute's language and the words used, unless the context necessarily requires a different construction or a different construction is expressly provided by statute." Hernandez v. Ebrom, 289 S.W.3d 316, 318 (Tex. 2009). "Unambiguous statutory language is interpreted according to its plain language unless such an interpretation would lead to absurd results." Id.

Subsection (f) is triggered when a "replacement structure" has been built to replace a residence that was "rendered uninhabitable or unusable by a casualty or by wind or water damage." TEX. TAX CODE ANN. § 23.23(f) (West Supp. 2010). The statute declares that such a "replacement structure" is not considered a "new improvement" under subsection (e), and it sets forth the parameters for "appraising the property under Subsection (a) in the tax year in which the structure would have constituted a new improvement." Id. The statute does not define the terms "uninhabitable" or "unusable."

Subsection (f) establishes a formula to be applied to the replacement structure for purposes of appraising the property under subsection (a). First, under subdivision (f)(1), the property is assessed at "the appraised value the property would have had in the preceding tax year if the casualty or damage had not occurred." Id. That value is then used in calculating the maximum appraised value for the current tax year. Id. Second, the replacement structure is considered to be a "new improvement" under the subsection (a) calculation only if it meets the requirements of subdivision (f)(2). Id. With this background, we turn to the three scenarios you pose.

Scenario 1

A homestead has an appraised value of $300,000 on January 1, 2008. The homestead is partially damaged by Hurricane Ike in September 2008. As a result, the homestead's value on January 1, 2009 is appraised by the CAD at $150,000. During 2009, renovations restore the homestead to its pre Hurricane Ike status.

Request Letter at 4.

In this scenario, you have not indicated that the structure was "rendered uninhabitable or unusable," and we will, for purposes of your question, presume that it was not. Because the structure was not "rendered uninhabitable or unusable," subsection (f) is not applicable. If the renovations to the property are reasonably determined to constitute "repairs to" an existing structure, the renovations, by virtue of subsection (e), fall outside the definition of "new improvement." In that case, the appraised value of the property for the 2010 tax year is calculated under subsection (a) in the following manner: $150,000 (the 2009 appraised value); plus a maximum of $15,000 (the cap established by subsection (a)(2)). If on the other hand the renovations are reasonably determined not to constitute "repairs to" an existing structure, such renovations must be treated as a "new improvement." In that event, the appraised value for tax year 2010 is calculated under subsection (a) in the following manner: $150,000 (the 2009 appraised value); plus a maximum of $15,000 (the cap established by subsection (a)(2)); plus "the market value of all new improvements to the property." Whether the renovation of any particular structure constitutes mere "repairs" or a "new improvement" is a fact question whose resolution is inappropriate to the opinion process.[2]

Scenario 2

A homestead has an appraised value of $300,000 on January 1, 2008. The homestead is extensively damaged by Hurricane Ike in September 2008 and is uninhabitable. As a result, the homestead's value on January 1, 2009 is appraised by the CAD at $100,000. The homestead is restored to its pre Ike condition in 2009.

Id. at 4-5.

In this scenario, the structure has been rendered uninhabitable by storm damage. As a result, the replacement structure will be valued in accordance with subsection (f). The determination of the appraised value for tax year 2010 is calculated, pursuant to subdivision (f)(1), by assuming a value that the property "would have had [in 2009] if the casualty or damage had not occurred," and using such value in the subsection (a) calculation. It is unclear what the Legislature intended by its use of the phrase "would have had." Because the appraisal district is statutorily charged with the duty of "appraising property in the district," the appraisal district should, in the first instance and in accordance with subdivision (f)(1), determine the value that the property "would have had [in 2009] if the casualty or damage had not occurred.[3] See TEX. TAX CODE ANN. § 6.01(b) (West 2008) ("The [appraisal] district is responsible for appraising property in the district for ad valorem tax purposes of each taxing unit that imposes ad valorem taxes on property in the district.").

In addition to the calculation used by the appraisal district in determining the value a particular property "would have had" in 2009, subsection (a) of section 23.23 authorizes an appraisal district to "increase the appraised value of a residence homestead for a tax year not to exceed the lesser of: (1) the market value of the property for the most recent tax year that the market value was determined by the appraisal office"; or (2) the sum of (A) the value the property "would have had" in 2009 as determined by the appraisal district; (B) 10 percent of that value; and (C) the market value of all new improvements to the property. Because you have indicated in this scenario that there were no "new improvements" to the property in 2010, the appraisal district may add to its appraised value for tax year 2010 a maximum of ten percent of the value the property "would have had" in 2009, as determined by the appraisal district.

Scenario 3

A homestead has an appraised value of $300,000 on January 1, 2008. The homestead is extensively damaged by Hurricane Ike in September 2008 and is uninhabitable. As a result, the homestead's value on January 1, 2009 is appraised by the CAD at $100,000. The homestead is renovated; but in making the renovations, the owner changes the exterior of the structure or increases the square footage of the homestead. . . .

Request Letter at 5.

In this scenario, the structure has been rendered uninhabitable by storm damage. When the structure is replaced, either the square footage is increased or the exterior of the replacement structure is of higher quality construction and composition than was the previous structure. In such a situation, the determination of the 2010 appraised value under subsection (a) is governed first by the application of subdivision (f)(1), which establishes the appraised value for tax year 2009 at the value that the property "would have had [in 2009] if the casualty or damage had not occurred," and then by the application of subdivision (f)(2), which requires that the replacement structure be treated as a "new improvement." TEX. TAX CODE ANN. § 23.23(f)(1)-(2) (West Supp. 2010). As a result, the calculation of the 2010 appraised value is determined by subsection (a): the value that the property "would have had [in 2009] if the casualty or damage had not occurred"; plus a maximum of ten percent of that value under subsection (a); plus "the market value of all new improvements to the property" that are described by subdivision (f)(2).

SUMMARY

Calculation of the 2010 appraised value of a residence homestead damaged by Hurricane Ike in 2008 and renovated to its pre-storm status is determined by section 23.23(f) of the Tax Code so long as the structure was "rendered uninhabitable or unusable." If the structure was not rendered uninhabitable or unusable, calculation of the 2010 appraised value is dependent upon whether the renovations may reasonably be said to constitute a mere "repair" or a "new improvement" under section 23.23(e). If the structure was rendered uninhabitable or unusable, calculation of the 2010 appraised value is dependent upon the appraised value the property would have had in 2009 but for the storm damage, together with the market value of all new improvements to the property as described by subdivision (f)(2).

DANIEL T. HODGE
First Assistant Attorney General

DAVID J. SCHENCK
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Rick Gilpin
Assistant Attorney General, Opinion Committee

[1] Request Letter (available at http://www.texasattorneygeneral.gov).

[2] Attorney General Opinion GA-0091 considered the argument that the term "ordinary maintenance" was synonymous with the term "repairs," but rejected that contention largely because the word "maintenance" was modified by the word "ordinary." Tex. Att'y Gen. Op. No. GA-0091 (2003) at 5. This construction has been superseded by the Legislature's 2007 amendment of subsection (e), which specifically excluded "repairs" from the definition of "new improvement." See id. at 2-3. Opinion GA-0091 also noted that section 11.26 of the Tax Code, which limits the appraised value of renovated homesteads owned by the elderly or disabled, requires that the appraiser determine whether a structure has been totally, or only partially, destroyed. The opinion suggested that, if "the value of the damage totaled less than half of the homestead's original value, an appraiser reasonably could find that the homestead was repaired" rather than fully reconstructed. Id. at 7. In view of the present language of section 23.23(e), this suggestion should not necessarily be regarded as persuasive. In any event, as we have noted, a determination of whether any particular renovation constitutes a "repair" or a "new improvement" is a question of fact.

[3] Under your second scenario, it does not appear that the replacement structure will be considered a "new improvement" under subdivision (f)(2).