Property taxes are a perennial concern for homeowners, real estate investors, and potential home buyers alike. They are a necessary part of owning property, but they can also be perplexing and, at times, burdensome. To help you navigate the world of property taxes and uncover some strategies to minimize their impact on your finances, we’ve prepared a guide that breaks down how property taxes work and presents several ways to save on them.
What Are Property Taxes?
Property taxes are levied by local governments and are used primarily to fund essential public services such as schools, roads, fire departments, parks, and other community infrastructures. The amount of property tax owed is determined by the value of the property and the tax rate set by the local government or taxing authority.
How Property Taxes Are Calculated
The formula for calculating property taxes generally involves two key components: the assessed value of the property and the millage rate.
1. Assessed Value: This is the value assigned to your property by the local tax assessor's office. It is supposed to reflect the fair market value of the property, but it often differs due to assessment practices and regulations. Some jurisdictions assess at full market value, while others use a percentage.
2. Millage Rate: Also known as the tax rate, the millage rate is the amount per thousand dollars of assessed value that is used to calculate your taxes. For instance, if the millage rate is 20 mills, you would owe $20 in property tax for every $1,000 of assessed value.
Multiply these two together, and you'll have your property tax bill. Say your home is assessed at $200,000, and the millage rate is 20 mills. Your property taxes would be $4,000 annually.
Regular Reassessments and Appeals
Properties are typically reassessed on a regular schedule, which varies by jurisdiction. During a reassessment, the tax assessor will take into account recent sales of comparable properties, changes to your property, and other factors to determine its current market value.
If you believe your property's assessed value is too high, you have the right to appeal. This process also varies by area, but it generally involves providing evidence such as recent comps or appraisals that demonstrate a lower value for your property.
Ways to Save on Property Taxes
Saving on property taxes is possible and can significantly impact your budget. Here are some methods:
1. Homestead Exemptions: Many states offer homestead exemptions that reduce the taxable value of a home for primary residents. This can lead to substantial savings, but you typically must apply for this exemption.
2. Senior Citizen and Disability Exemptions: Additionally, exemptions are often available for senior citizens, veterans, and disabled individuals, offering relief by reducing the effective assessment against which taxes are levied.
3. Agricultural Valuations: If your land is used for agriculture, you might qualify for a lower, agricultural value, reducing your property tax bill.
4. Improvement Exemptions: Some areas encourage property improvements by offering temporary tax exemptions on the value added through renovations or upgrades.
5. Property Tax Deferral: Some jurisdictions provide the option for older homeowners to defer property taxes until the home is sold, easing the financial pressure during retirement years.
6. Regular Assessments of Property Tax Bills: Always review your property tax bill and assessment notices for errors. If you notice discrepancies, such as incorrect property measurements or missing exemptions, bring these to the attention of the tax assessor.
7. Tax Caps and Rate Limitations: Understand if your state has tax caps, like California's Proposition 13, or limitations on how much your property taxes can increase year over year.
8. Appeal Your Assessment: As mentioned earlier, if you feel your property’s assessed value does not reflect its current market value, appeal the assessment. You may need to present evidence to support your claim.
9. Limit Curb Appeal: This might seem counterintuitive, but limiting cosmetic enhancements can be strategic before an assessment, as assessors can consider a property's outward appearance when determining value.
10. Energy Efficiency Tax Credits: Some jurisdictions provide incentives or tax credits for energy-efficient upgrades, which may lower property taxes, depending on how they affect property value assessments.
Conclusion
Property taxes, while unavoidable, do not have to be a source of financial distress. By understanding how they are calculated and what influences the amount you owe, you can take proactive steps to manage and reduce your property tax liability. Homestead exemptions, appeals, assessing for errors, and taking advantage of tax deferral programs are just a few of the ways to potentially save on property taxes.
Remember that staying informed about local tax laws, staying vigilant about your property assessments, and taking action when discrepancies arise can make a considerable difference in your financial health as a property owner. With these tips and a little bit of effort, you can ensure you are not overpaying and are keeping your property taxes as low as legally possible.
This article was contributed on Mar 21, 2024
