Property taxes can be one of the most frustrating expenses for homeowners, especially as they increase over time. Unfortunately, property taxes are an unavoidable aspect of homeownership, and you will be responsible for them even after you pay off your mortgage. The amount you owe will be dependent on a few factors, but you can learn how to lower your property taxes if they are too high.
While property taxes are a necessary cost, homeowners shouldn’t be overpaying each year. It is important to understand how property taxes are determined to ensure your evaluation is fair. Read through the following guide to learn about how property taxes are determined and whether you can reduce them.
What Is Property Tax?
Property tax is an annual cost paid for by individuals, businesses, or other legal entities who own properties. Property taxes are an ad valorem tax, meaning the amount required depends on the asset’s value (in this case, real estate). They can also be considered a regressive tax because they are not dependent on income. According to WalletHub, the average household pays about $2,375 in property taxes annually. These funds are typically used to fund community resources, such as schools, law enforcement, libraries, utilities, and other public services.
Property tax rates will vary based on where you live, as these taxes are set on a state and local level. In some areas, your personal property, such as boats or cars, could be considered when establishing property taxes. Other areas might include any land you own as well. For this reason, it is always important to research an area’s tax laws before buying a property. This will give you a better idea of what to expect and help you understand exactly where your taxes are going.
[ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]
Why Is My Property Tax Higher Than My Neighbors?
There are a few reasons why your property tax could be higher than your neighbors, but it all comes down to property value. Property tax is determined by multiplying the property tax rate in your area by your home’s current value. For example, in New Mexico, the property tax rate is about .79 percent. If your home value is $250,000, you could expect to pay around $1,975 annually. If your neighbor’s house were valued at less than $250,000, they would not be required to pay the same amount.
Property value is determined by a tax assessor, who in some areas is an elected official. This person will assess each property’s market value by looking at square footage, amenities, comparable properties, and more. They will use this information to assign a property tax to owners. This process is typically repeated on an annual basis, which is why your property taxes could change from year to year. This also explains why there could be some variability in how much you and your neighbors owe — though in many cases, the difference will not be significant.
How to Lower Your Property Tax in 6 Steps
If you believe you are paying too much in property taxes, or your rates have gone up recently and you are not sure why there are a few things you can do. The first thing you should do is always to look up property tax laws in your area. Then, once you are ready to get started here are six steps to lower your property taxes:
-
Get Your Property Tax Card
-
Challenge Your Home Assessment
-
Compare With Neighbors & Similar Homes
-
Appeal If Your Assessment Is Wrong
-
Check If You Qualify For Discounts Or Tax Relief
-
Appeal Your Tax Bill
Get Your Property Tax Card
An often surprising aspect of property tax evaluations is that homeowners can request their property tax card at the local assessor’s office. This card will have information about the size of the lot, square footage and room sizes, and the type of fixtures within the home. The property tax card will also typically include a record of any major renovations or improvements. As a homeowner, you can ask for this record if you suspect there are any discrepancies.
This is often the simplest way to correct any problems in your property tax evaluation — after all, mistakes happen, and something could be incorrectly noted in your property record. If this is the case, you can speak with the assessor about correcting the issues or performing another evaluation on your home.
Challenge Your Home Assessment
There are two components used when determining your property taxes: the tax rate, which is set by the government, and the value of your home, which is set by the tax assessor. While you cannot change your area’s tax rate, you can step in if your home has been incorrectly valued. The tax assessor is typically looking at comparable properties when establishing your home’s value. In some cases, this can lead to discrepancies regarding the actual value of your home. If you believe your property to be incorrectly valued, you can challenge your assessment with the assessor. This will typically lead to a new evaluation — and if you are right, a lower tax rate.
Compare With Neighbors & Similar Homes
Just as you can request your property tax information, you can also request other property assessments in your area. In most areas, this information is easily accessible at the town hall. If you are curious about how your neighbors’ homes are being valued, request this information to learn more. You may already know you have similar properties but discover they are valued differently. For example, if you both have similar square footage, but one property has more amenities than the other, they could be valued differently despite being in the same area. You can use this information to correct discrepancies in your property evaluation and potentially lower the amount of taxes you owe.
Appeal If Your Assessment Is Wrong
If you believe your property assessment is wrong, you may need to appeal the assessment. There is a lot of debate in the real estate world about what constitutes market value, and unfortunately, this debate can lead you to pay higher than necessary property taxes. Do not be afraid to appeal your assessment if you think the property value was overestimated. You can start your appeal on a county level and go to the state if necessary. In many cases, the assessor will be required to do a new walkthrough of your property — which you can accompany them on. This will give you a better idea of what is being taken into account and provide you with the opportunity to point out anything that may have been overlooked.
Check If You Qualify For Discounts Or Tax Relief
With any type of tax policy, there are certain exemptions available for those who qualify. When it comes to property taxes, many states will offer discounts to seniors, veterans, or people with disabilities. Look up your local tax laws to determine if you qualify for one of these exemptions. If not, there may be other discounts available. You might qualify for a lower tax bill if your property is used for agricultural purposes or if it is your primary residence. Again, property tax is set on a state and local level, so these rules will change depending on where you live.
Appeal Your Tax Bill
For those unable to receive a new property assessment in time, there is one more step you can take to avoid overpaying in property taxes. This involves appealing your tax bill with the help of an attorney. You will have to pay some legal fees, and there is no guarantee it will be successful. However, if you are overpaying, an appeal might be the only way to fix the situation. Essentially, you will need to provide the court with photos, tax information, and details about your property. This will be reviewed by a board, who will then determine whether or not to lower the assessment on your home. If you are successful, this will result in a reduction of your tax bill.
How Updating Your House Affects Taxes
Updating your house or remodeling can raise your property taxes. Essentially, these upgrades can raise the overall value of the property. The next time it is assessed, these upgrades will be taken into account when deciding the value the taxes are based on. While it is generally a positive to add value to your home, you will inadvertently add to your tax bill as well.
Some homeowners will tell you not to complete any major changes or repairs before the tax assessor’s visit. Assessor typically reach out to schedule such visits, so in theory you could hold off on certain improvements until after the visit. One area where this may be helpful is in terms of curb appeal. Remember that your property is being compared to those around it. If you hold off on a major yard makeover until after your appointment you may succeed in keeping your home value the same.
With all of that being said, property taxes are not a strong enough reason to neglect your property or avoid changes that could increase your quality of life (or resale value). While it is an idea to postpone certain upgrades until after a designated assessment, these should not be moved indefinitely in anticipation of a higher tax bill.
Summary
Property taxes are one of many recurring costs associated with homeownership. Even after you make your last mortgage payment, you will still be responsible for annual property taxes. This is because they are vital to community services. That being said, you should never be afraid to gather more information on your area’s tax policy and your own property assessment. Learning how to lower your property taxes is a great way to make sure you are not overpaying each year. Follow the steps above and let us know what worked best for you.
Ready to start taking advantage of the current opportunities in the real estate market?
Click the banner below to take a 90-minute online training class and get started learning how to invest in today’s real estate market!
