Managing Money

All You Need to Know About Property Taxes

If you’re buying a home, you’re going to have to pay property taxes. How much you pay and when depends on your local government, but it may surprise you to know there’s a way to permanently reduce your property taxes. Read on to learn why property taxes are collected, how they’re assessed, and how to pay them.

Why Property Taxes Are Collected

Receiving your property tax bill can be frustrating, but keep in mind that property taxes are paid directly to your local government to pay for important community services, such as public libraries, public schools, police and fire services, and the roads you drive on every day.

You may also have to pay special or direct assessments — flat taxes often earmarked for recurring local services, such as park maintenance or street cleaning. These taxes may also be temporary if they’re being collected for the construction of a new public school or library.

Collecting funds for these services is why property taxes are levied every year, even if you’ve paid off your mortgage. As long as you’re the lawful owner of the property, you’ll have to pay your share of property taxes to the local government. The good news is you can deduct your property taxes on your federal income tax return, but only the portion based on your property value, not the special assessments.

You should always research local property taxes before you buy a home so you aren’t surprised when you receive the first bill.

How Property Taxes Are Assessed

To determine your property tax bill, your local government will first have to appraise the value of your property. This is the most important step. Every subsequent calculation is based on that number.

Next, the government will apply the local mill rate. That’s the amount of money due for every $1,000 of your property’s assessed value. For example, if the mill rate is five and your property is worth $200,000, you’ll pay $1,000.

(Mill Rate x Assessed Property Value) / 1,000 = Property Tax Amount 

Because property taxes are based on the assessed value of your home, they can increase or decrease if the value changes. If you renovate your house, increasing its market value, your property tax bill will likely increase.

How to Permanently Reduced Your Property Tax Bill

Experts estimate that millions of U.S. homes may be overassessed. If you believe your home’s assessed value is too high, you can appeal the assessment and get your property taxes reduced.

To appeal your property tax assessment, you’ll need to show why you believe your home is overassessed. For example, the local government may have inaccurate information about your home. If records say you have an in-ground pool or a fourth bedroom, but you don’t, you’ll have a very strong case. Additionally, you can strengthen your case by looking for comparable properties in your area that are valued significantly lower than your home.

You’ll most likely be able to file the appeal form online or through the mail. However, if your appeal isn’t approved, you may have to attend an in-person hearing. At the hearing, you’ll argue your side of the case and present your evidence: comparable, low-value properties or photos of your home that show the government has inaccurate information. An official from the local tax assessor’s office may be present to defend the tax office’s assessment of your home.

Taking on the local government may seem like a big job, but there’s very little downside to appealing your property tax assessment. It can save you money, just like using a discount real estate broker or an agent-matching service that connects customers to full-service agents who work for a fraction of the traditional cost.

The worst-case scenario is that your appeal is denied, and your property taxes stay the same. The only real cost is your time and any non-refundable fees you may have to pay to file your appeal.

You May Be Eligible for a Property Tax Exemption

Many jurisdictions offer property tax exemptions for various groups, including military veterans, senior citizens, and residents who’ve lived in a home for a certain amount of time. Some municipalities also offer homestead exemptions, which exempt a portion of home value from taxes. Contact your local tax assessor’s office to find out if you qualify for an exemption.

How to Pay Property Taxes

Due dates for property taxes vary widely between counties. In some cities, you pay your annual bill in one lump sum. In others, you pay in installments.

Generally, there are three ways to pay your property taxes, and how you pay can cost you. The first option is to send a check to your local tax office. The only extra costs are the envelope and postage stamp.

The second method is to pay online through your local tax assessor’s website. If you opt for an online payment, you’ll likely have to pay a convenience or processing fee. Many counties will also add an additional, percentage-based fee if you use a credit card. This can add hundreds or even thousands of dollars to your property tax bill.

If you have a mortgage, it’s likely that part of your monthly payment is set aside in an escrow account for property taxes. Your lender then uses the money in that account to pay your property taxes when the bill is due. In that case, it never hurts to ask your mortgage lender to make sure your property taxes are paid on time and in full.

Failure to Pay Property Taxes Can Have Dire Consequences

If you fail to pay your property taxes on time, you’ll have penalties and interest added on. If you still don’t pay, you could have a tax lien placed on your house. If you sell, proceeds will repay the lien before you receive your cut. If your property taxes are delinquent for long enough, your home may be foreclosed and auctioned to pay your tax bill.

About the author

Ben Mizes