What is a Property Tax?
Property tax is a tax levied on an immovable property like a house, a building or a piece of land. Property taxes are the single largest source of revenue for state and local governments. They help to fund public services such as schools, roads, police, fire protection and other vital programs for the county. The taxes are calculated by the local government where the property is located and paid for by the property’s owner. Tax amount varies based on the value of the property which is usually assessed on an annual basis. Please note that property tax could also be levied on movable personal property such as vehicles and equipment as well. In the context of this post, we will limit property tax to immovable property.
Property Tax Rate
Tax amount is calculate based on the tax rate which is made up by many different tax categories or jurisdictions which may include county, school, emergency services and hospital… This is why sometimes you will see property tax referred to as property taxes instead of the singular form. The tax rate represents a percentage of the property value and could range any where from under one percent to a few percentage points. In states with high property taxes, monthly tax payment could equal or exceed the monthly loan repayment. Avoid properties with high tax rates if you can to keep your housing expenses low.
Real estate websites such as Zillow, RedFin or Trulia always provide tax rate on the property for you. However, do not blindly trust what you see on real estate websites. Most listing agents enter low tax rate for the property to make monthly payment look more attractive to potential buyers. This can be dangerous as it gives home buyers a false sense of assurance that they can afford the property. If you are looking to purchase a property, be sure to ask your buyer’s agent about property taxes. The best source for this information is from the county tax assessor. Most counties have a website that can provide this information online so be sure to search for it.
How is property tax collected?
Property owners should receive an assessment on the value of their property once a year (note that assessed value is different than market value). Based on that assessment, the tax rate is applied on it and that will result in the tax amount. Property taxes are usually assessed and collected once a year. They could be collected directly from the property owner or through an escrow company. If collected through escrow, the tax amount is usually broken down to 12 equal payments. Check this post to learn more about escrow and what goes into your monthly mortgage payment.
Paying too much taxes?
Local county assessor is responsible for assessing property value and determine the tax amount. County assessor determines the property value by taking into account any visible improvements or deteriorations on the exterior and comparing with recent sales in the local area, The tax amount could be higher or lower than estimated market value of the property. Usually, the assessed value is lower than the market value thanks to the maximum cap for property value increase. That means the maximum amount of annual increase in assessed property value is caped at a certain value no matter how much the estimated value of the property is for that year increases. Still, most homeowners feel they are paying too much taxes. The good news is that you don’t have to agree with the assessed value of their property. In such case, you could protest their tax assessment with the county assessor.
To protest, you will need to make a case with the country appraisal board on why you think they disagree with the assessed value. There are plenty of companies out there that can help you to protest the assessed value. Unfortunately, they could charge several hundred dollars to do it so that would negate pretty much all the savings you gain from the protest. Protest property tax assessment is not hard and you could do it yourself for free. The best way is to protest tax is to get the comps for the property and repair estimates for anything that needs to be fixed and present it to the appraisal board. To get the comps, find a local real estate agent and ask them for the comps in your area. Most agents will be more than happy to do it for free as that will generate lead and allow them to build rapport with you.
Do you have to pay property taxes?
Most property owners will have to pay property taxes. The good news is, if the property is your primary resident, you can claim homestead exemption. That could help you lower the taxes. Seniors can also get special exemptions and as well as certain military veterans. Check with the county tax assessor for exemption requirements as it is different from one county to another.
Summary
Property owners pay taxes on their properties and the proceeds of that is used to fund public services in the area. Tax rate is different for each area and broken down in many different categories. The taxes are collected once a year by the county assessor based on the estimated value of the property. To save money, you could protest the estimated value of your property to lower the taxes as well as claiming homestead exemption for your primary resident. Check with the county assessor to see if you can qualify to special exemption which could further lower your taxes. I hope this post has been helpful for you in understanding property taxes and help you lower your taxes.