Property Taxes: Everything You Need to Know
Property taxes are taxes levied on real estate, such as land and buildings, and are typically based on the value of the property and are a major source of revenue for local governments. Property taxes are used to fund public services, such as schools, police, and fire departments. In this article, we’ll discuss everything you need to know about real estate property taxes.
How Real Estate Property Taxes Work
Property taxes are assessed by local governments and are based on the value of the property. Property tax is typically based on an assessed value of the property via the county assessor where a mill levy (ratio factor) is then applied to calculate your real estate property tax due for the following year. The amount of tax owed is determined by multiplying the assessed value of the property by the local tax rate. Property taxes are typically paid annually, but some jurisdictions allow for quarterly or monthly payments.
Property taxes are typically paid by the homeowner, usually through your escrow account listed on your mortgage statement, but in some cases, the tenant may be responsible for paying the tax. In addition, some jurisdictions allow for a tax deferral or exemption for certain types of properties, such as those owned by seniors or veterans.
Property Tax Rates by State
Property tax rates vary widely by state. According to SmartAsset, the states with the highest property tax rates are New Jersey (2.35%), Illinois (2.30%), Texas (2.18%), and New Hampshire (2.17%). On the other hand, the states with the lowest property tax rates are Hawaii (0.27%), Alabama (0.43%), Louisiana (0.45%), and West Virginia (0.49%).
You can find the average property tax rate by State, County, and City for where you live by going to Median Property Taxes by County.
Property Tax Exemptions and Deferrals
Many states offer property tax exemptions and deferrals for certain types of properties. For example, some states offer exemptions for properties owned by seniors, veterans, or disabled individuals. In addition, some states allow for a tax deferral for properties owned by low-income individuals.
Property Tax Appeals
While homeowners may love seeing their home values go up over the past few years, that comes at a cost. With the inflation and demand, also comes a delay (usually about 2 years after) of county property tax assessments increasing due to the new adjusted valuation which may increase your overall housing cost. Of course, you can appeal the assessment for a reduction if you believe that your property has been over-assessed. In most cases, you will need to provide factual evidence that the assessment is incorrect (not emotional or feeling factors, but true valuation factors).
Our recommendation is to contact the real estate agent that helped you buy the home (or contact us and we will connect you with a quality Realtor® who will do this for you, usually free of charge) to have the best chance of success in getting your property tax appeal accepted and reduced. This could include evidence of comparable properties in the area that have been assessed at a lower value. For an example of where to do, here is the State of Colorado’s Property Tax Appeal Site.
Conclusion
Property taxes are a major source of revenue for local governments. Property tax rates vary widely by state, with the highest rates in New Jersey, Illinois, Texas, and New Hampshire. Many states offer property tax exemptions and deferrals for certain types of properties, such as those owned by seniors or veterans. Understanding how property taxes work and the options available to you can help you make informed decisions about your real estate investments.
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