Before You Buy in Texas, Know These 2 Little-Known Taxes!

Are there hidden taxes when buying a home in Texas?
If you're considering buying a home in Austin, Texas, you're probably budgeting for your down payment, closing costs, and maybe even a few upgrades. But what many buyers overlook are two lesser-known taxes that can significantly affect your overall cost of homeownership.

As a licensed real estate agent experienced in Austin-area transactions, I’ve helped many clients navigate this process. Today, I’m breaking down two frequently missed expenses so you can make informed decisions with clarity.

1. The Property Tax Adjustment at Closing

What is it?

While property taxes themselves aren’t a surprise, the adjustment that happens at closing often is. Since Texas has no state income tax, property taxes tend to be higher than in many other states. Here’s where it gets tricky: depending on when you close during the year, you may owe the seller a prorated portion of property taxes.

Why it matters in Austin

In Travis County and nearby areas like Williamson and Hays, property tax rates can range from 1.8% to 3.5%, depending on the taxing jurisdictions (school district, MUD, city, etc.).

If you close on your Austin home in October, the seller will typically credit you for their share of property taxes accrued from January through October. Since Texas property taxes are paid in arrears, you, as the buyer, will be responsible for paying the full tax bill when it becomes due—usually later in the year. The credit from the seller helps cover their portion of the year.

This amount—often several thousand dollars—can come as a surprise if you mistake it for part of your closing costs. In reality, it’s a tax-related reimbursement.

Quick tip from Colt Yancey:
"Always request a tax proration estimate early in your home search, especially in hot markets like Austin. It gives you a more accurate picture of your cash-to-close."

2. The Hidden Cost of Special Taxing Districts

What are they?

Many Texas neighborhoods—particularly newer or fast-growing ones—are part of special taxing districts, including:

• MUDs (Municipal Utility Districts)

• PIDs (Public Improvement Districts)

• WCIDs (Water Control and Improvement Districts)

These districts collect additional taxes to fund infrastructure like utilities, roads, drainage, and parks. They’re especially common in new construction communities around Central Texas.

How this impacts your mortgage

If your home is located in a special taxing district, those taxes are added on top of your standard property tax rate. That means your monthly escrow payment (which includes taxes and insurance) could be significantly higher than expected.

You might compare two similar homes—one with a MUD or PID and one without—and not realize the tax difference could increase your monthly cost by $300 or more.

Where to watch in Austin

Areas such as East Austin, Leander, Georgetown, Liberty Hill, Jarrell, Pflugerville, Hutto, and Buda frequently include homes within MUDs or PIDs. Always request a full breakdown of tax rates to avoid unexpected increases in monthly payments.

Colt Yancey’s advice:
"I always dig into the tax rate and check for MUDs or PIDs before my clients even look at a house. It’s easy to get caught off guard if you don’t have someone local watching your back."

Why This Matters More Than Ever in 2025

As of March 2025, the average days on market in Austin is 66, according to Unlock MLS. That gives buyers a bit more negotiating power than in previous years. However, with high property tax rates and the expansion of special districts, overall housing costs are still rising.

New developments across Travis, Williamson, and Hays counties are increasingly built within special taxing jurisdictions—meaning more buyers are impacted by these hidden expenses.

What You Can Do to Stay Ahead

✅ Request a full property tax estimate, including MUD/PID details, before submitting an offer
✅ Review the preliminary title report for tax district disclosures
✅ Ask your lender to factor tax rates into your mortgage estimate
✅ Work with a local real estate professional who understands the nuances of Austin’s taxing districts

Final Thoughts

Buying a home in Austin is an exciting step, but unexpected tax expenses can affect your financial plan if you’re not prepared. The property tax proration and special district levies are two commonly missed costs every buyer should understand.

Whether you’re relocating or purchasing for the first time, let’s make sure your next move is based on the full picture—not just the list price.

FAQs

Is property tax high in Austin, Texas?
Yes. Property tax rates in Austin typically range from 1.8% to 3.5% of a home’s appraised value due to the absence of a state income tax.

What is a MUD or PID tax?
These are special district taxes that fund infrastructure and are added on top of standard property taxes.

Do I have to pay property taxes at closing in Texas?
Often, yes. You may reimburse the seller for taxes they've accrued up to the closing date—a process called proration.

Are there hidden costs when buying a home in Austin?
Yes. Prorated property taxes and additional taxes from special districts can increase your up-front and monthly costs.

How can I avoid surprise taxes when buying a home?
Work with a local real estate agent who proactively reviews tax district information and explains cost implications upfront.

This content is provided for general informational purposes only and should not be considered legal, financial, tax, or investment advice. I am not an attorney, accountant, or financial advisor. Real estate laws and market conditions vary by location and are subject to change without notice. All information should be independently verified. Always consult with a licensed attorney, tax professional, or financial advisor for guidance specific to your situation.