Your neighbor's home value dropped 8% last year. So did yours. You checked HCAD and confirmed it: your appraised market value is lower than it was a year ago. Finally, some relief on that tax bill.
Then the bill arrives. It went up.
You read it again. You check the numbers. Your home is worth less, but you owe more. It feels like something is broken. Like someone made a mistake. Like the system is rigged.
It is not rigged. But it is genuinely confusing. And the explanation is something most property tax companies will never tell you, because understanding it means some of you will realize you do not need their services.
We are going to tell you anyway.
The basics: What is the homestead cap?
If you own your home and have a homestead exemption filed in Texas, your property gets a special protection: the 10% annual cap on assessed value increases.
Here is how it works in plain language.
Every year, your county appraisal district (HCAD for Harris County) determines your home's market value — what they believe your property would sell for on the open market. This number can swing wildly. Up 25% one year. Down 10% the next. It follows the real estate market.
But your assessed value — the number your taxes are actually calculated on — cannot increase by more than 10% per year from the prior year's assessed value, plus the value of any new improvements.
Example: If your home's market value jumps from $300,000 to $390,000 in a single year (a 30% increase), the county cannot assess you at $390,000. They can only bump your assessed value up by 10%. If you were assessed at $300,000 last year, the most they can charge you on this year is $330,000.
The official formula from Texas Tax Code Section 23.23(a): your capped appraised value equals the lesser of (a) market value, or (b) last year's appraised value × 1.10, plus any new improvements.
That $60,000 difference between your market value ($390,000) and your assessed value ($330,000) is the cap-gap. And it has been quietly saving you money, sometimes for years.
The gap is a good thing — until it closes
Here is the part that trips people up. The cap-gap is not a permanent discount. It is a buffer. It builds up during years when the market runs hot, and it can disappear when the market cools off.
Think of it like a savings account you did not know you had. While market values were climbing fast, the cap held your assessed value down. That gap accumulated. But the gap does not stick around forever. When market values flatten or fall, the assessed value can keep rising (up to 10% per year) until it catches the market value.
And when the market value actually drops below where the assessed value has been climbing toward, the gap disappears entirely.
This is the moment that feels like betrayal: home values are falling, and your taxes are still going up.
A 5-year example that shows exactly what happens
Let's follow a hypothetical Harris County home over five years. The numbers are simplified, but the math works exactly the way HCAD calculates it.
Year 1 — Starting position
Market Value
$300,000
Assessed Value
$270,000
Cap-Gap
$30,000
Your taxes are based on $270,000. The gap is saving you money — the cap has been holding your assessed value below market value from prior years of rapid appreciation.
Year 2 — Market rises 10%
Market Value
$330,000
Assessed Value
$297,000
Cap-Gap
$33,000
Market went up, but your assessed value only went up 10% (cap allows max 10% increase from $270K). Gap widens slightly. You are still protected.
Year 3 — Market rises another 9%
Market Value
$360,000
Assessed Value
$326,700
Cap-Gap
$33,300
The market keeps climbing. The cap keeps holding your assessed value down. You are paying taxes on $326,700 instead of $360,000. At a 2.3% tax rate, that gap is saving you roughly $766 per year.
Year 4 — Market drops 6%, but taxes go UP
Market Value
$338,400
Assessed Value
$338,400
Cap-Gap
$0
Here is where it gets counterintuitive. The cap would have allowed your assessed value to rise to $359,370 (10% above last year's $326,700). But your market value dropped to $338,400, which is lower than the cap ceiling. So your assessed value jumps to $338,400 — matching the market value.
Your assessed value went from $326,700 to $338,400 — an increase of $11,700 — even though your home's market value fell by $21,600. The cap-gap just closed. The buffer is gone.
Year 5 — Market drops another 6%
Market Value
$318,096
Assessed Value
$318,096
Cap-Gap
$0
Now there is no gap at all. Your assessed value drops with the market because there is nothing left to catch up. Your taxes finally decrease — but only after the gap closed in Year 4.
The bottom line of this example
In Year 4, your home's market value dropped, but your assessed value went up by $11,700 and your taxes increased by roughly $269. That is not an error. That is the cap-gap closing.
This is not hypothetical. In one documented Collin County case, a property's market value dropped from $184,033 to $179,239 — a decrease of nearly $5,000. But the taxable value rose from $149,992 to $164,991 — an increase of $15,000. The homeowner's taxes went up despite owning a less valuable home. That is the cap-gap closing.
In 2025, 56% of Harris County homes saw their appraised value increase, while 31.8% saw a decrease. That means nearly one in three Harris County homeowners are experiencing exactly the scenario described in this guide — market value dropped, but taxes may still rise because the cap-gap is closing. If that sounds like your situation, keep reading.
When protesting helps and when it does not
This is where we are going to be straight with you, even though it might cost us a customer.
✓ Protesting is likely to help
Assessed = market and appraisal looks high
If there is no cap-gap and comparable homes in your neighborhood are assessed lower per square foot, you have a strong equity argument. This is the bread and butter of property tax protests in Texas.
Data error on your property record
HCAD has the wrong square footage, bedrooms, or condition grade. Protest firms report finding data errors in 10–15% of properties they review. A protest to correct bad data is almost always worth filing.
No cap-gap and above-median per-sqft value
You are being assessed higher than your neighbors for similar property. The appraisal review board can order a reduction based on equity.
— Probably will not help
You have a large cap-gap
If your assessed value is already well below your market value, there is nothing to protest. Even if you won a reduction in your market value, your assessed value would stay the same. You would win the hearing and see zero change in your tax bill.
Market dropped but assessed is still below market
This is the exact scenario from Year 4 in our example. The gap was closing. The district did not overvalue your home — your assessed value was actually catching up to where it should have been all along.
Your per-sqft assessment matches neighbors
If you and the houses on your street are all assessed at roughly the same rate per square foot, an equity argument will not work. The appraisal review board compares you to your neighbors. If you are all in the same range, there is no inequity to correct.
How to check your situation
Before you decide whether to protest, you need two numbers from your property record.
Look up your property on HCAD
Go to the Harris County Appraisal District website (hcad.org) and search for your address. Pull up your property detail page.
Find your Market Value and your Assessed Value
These are listed in the value summary section. They might also be labeled "Total Market Value" and "Total Assessed Value" or "Capped Value."
Compare them
The relationship between these two numbers tells you everything you need to know.
If your assessed value is significantly lower than your market value
You have a cap-gap. The homestead cap is still protecting you. A protest might reduce your market value on paper, but it will not change your tax bill until that gap closes. Filing a protest in this situation is not necessarily a mistake — locking in a lower market value now can slow the assessed value catch-up later. But do not expect an immediate tax savings.
If your assessed value equals your market value
The gap has closed. This is when protesting can directly reduce your tax bill. Check whether your per-square-foot value is above the median for your neighborhood. If it is, you may have a strong case.
On your HCAD notice, the cap-gap may appear as "homestead savings" — the dollar amount the 10% cap is saving you compared to what you would be assessed without it. If this number is large (say, $30,000+), protesting is unlikely to change your current bill.
Our scorer tool does this comparison for you automatically. Enter your address and it shows your assessed value versus the neighborhood median, flags whether you are an outlier, and tells you whether the numbers suggest a protest is worth filing.
Check your cap-gap instantly
Our free scorer shows your assessed value vs market value and whether you have room for a protest.
Check Your Property FreeThe honest bottom line
The cap-gap is confusing. There is no getting around that. Four different "values" on your property record, a 10% cap that sometimes protects you and sometimes catches up to you, and a tax bill that seems to move independently of the market. It is a lot.
But here is what matters.
The homestead cap has been helping you.
During the years when Harris County home values were climbing 15–25% annually, that 10% cap saved homeowners thousands of dollars. The gap it created was real money staying in your pocket.
When the gap closes, protesting becomes more valuable.
That is the moment to pay attention — when your assessed value catches up to your market value and you are being taxed on the full appraised amount. If the appraisal district has your value higher than comparable neighbors, a protest based on equity can bring it down.
Check your specific numbers before deciding.
A protest on a property with a $40,000 cap-gap is a different decision than a protest on a property where the gap is zero and you are assessed 15% above the neighborhood median. One is unlikely to change your bill. The other could save you real money.
One more thing to know: The cap-gap resets when you sell. Your buyer's assessed value starts at the full market price — the cap savings you built up over years do not transfer. This is worth understanding if you are calculating your total cost of ownership.
We would rather you know the difference before you spend your time — or ours.