If you ask most homeowners about their property taxes, they'll likely tell you they pay too much. Property taxes are real estate taxes calculated by local governments and paid by homeowners. They are considered ad valorem, which means they are assessed according to the value of your property.
Revenue generated from property taxes is generally used to fund local projects and services such as fire departments, law enforcement, local public recreation, and education. Although these services benefit all residents, property taxes can be extremely burdensome for individual homeowners. They tend to rise steadily over time. Even after you pay off your mortgage, the tax bills keep coming. Some states have more favorable property tax levels, but there's generally always some kind of tax to pay for municipal services.
You will never be free from property taxes while you own your home, but there are a few simple tricks you can use to lower your property tax bill.
- Property taxes are calculated by multiplying your municipality's effective tax rate by the most recent assessment of your property.
- Make sure you review your tax card and look at comparable homes in your area for discrepancies.
- Don't build or make changes to your curbside just before an assessment as these steps may increase your value.
- Give the assessor a chance to walk through your home—with you—during your assessment.
- Look for local and state exemptions, and, if all else fails, file a tax appeal to lower your property tax bill.
Understand Your Tax Bill
If you feel you are paying too much, it's important to know how your municipality reaches that figure on your bill. Sadly, many homeowners pay property taxes but never quite understand how they are calculated. It can be confusing and challenging, especially because there may be a disconnect between how two neighboring towns calculate their property taxes.
Property taxes are calculated using two very important figures—the tax rate and the current market value of your property. The rate at which taxing authorities reset their tax rates is based on state law—some change them annually, while others do so in different increments, such as once every five years. Municipalities set their tax rates—also known as millage or mill rate—based on what they feel they need to pay for important services.
An assessor, hired by the local government, estimates the market value of your property—which includes both the land and structure—after which you receive an assessment. (In some jurisdictions, the assessed value is a percentage of the market value; in others, it is the same as the market value.)
The assessor may come to your property, but in some cases, an assessor may complete property assessments remotely using software with updated tax rolls. Your local tax collector's office sends you your property tax bill, which is based on this assessment.
In order to come up with your tax bill, your tax office multiplies the tax rate by the assessed value. So, if your property is assessed at $300,000 and your local government sets your tax rate at 2.5%, your annual tax bill will be $7,500.
WATCH: How Are Property Taxes Calculated?
Ask for Your Property Tax Card
Few homeowners realize they can go down to the town hall and request a copy of their property tax cards from the local assessor's office. The tax card provides the homeowner with information the town has gathered about their property over time.
This card includes information about the size of the lot, the precise dimensions of the rooms, and the number and type of fixtures located within the home. Other information may include a section on special features or notations about any improvements made to the existing structure.
As you review this card, note any discrepancies, and raise these issues with the tax assessor. The assessor will either make the correction and/or conduct a re-evaluation. This tip sounds laughably simple, but mistakes are common. If you can find them, the township has an obligation to correct them.
Any structural changes to a home or property will increase your tax bill. A deck, a pool, a large shed, or any other permanent fixture added to your home is presumed to increase its value.
Homeowners should investigate how much of an increase a new addition means to their property tax bill before they begin construction. Call the local building and tax departments. They'll be able to give you a ballpark estimate.
Limit Curb Appeal
Tax assessors are given a strict set of guidelines to go by when it comes to the actual evaluation process. However, the assessment still contains a certain amount of subjectivity. This means more attractive homes often receive a higher assessed value than comparable houses that are less physically appealing.
Keep in mind, your property is essentially being compared to your neighbors' during the evaluation, as well as others in the general vicinity. While it may be difficult, resist the urge to primp your property before the assessor's arrival. You should be able to plan ahead because the assessor normally schedules a visit in advance. If possible, don't make any physical improvements or cosmetic alternations to the home—new countertops or stainless steel appliances—until after the assessor finishes the evaluation.
Research Thy Neighbors
As mentioned above, information about your home is available at the local town hall. What many individuals don't realize is that in many cases, information about other home assessments in the area is also available to the public.
It is important to review comparable homes in the area and general statistics about the town's evaluation results. You can often find discrepancies that could lower your taxes. For example, let's say you have a four-bedroom home with a one-car garage, and your home is assessed at $250,000. Your neighbor also owns a four-bedroom home, but this house sports a two-car garage, a 150-square-foot shed, and a beautiful swimming pool. Despite this, your neighbor's home is valued at $235,000.
Was there a mistake? Unless your property has some other distinguishing characteristics that explain the discrepancy, the assessor probably made an error.
If you do find an error, it pays to bring it to the assessor's attention as soon as possible so you can get a reassessment if necessary.
Walk the Home With the Assessor
Many people allow the tax assessor to wander about their homes unguided during the evaluation process. This can be a mistake. Some assessors will only see the good points in the home such as the new fireplace or marble-topped counters in the kitchen. They'll overlook the fact that several appliances are out of date, or that some small cracks are appearing in the ceiling.
To prevent this from happening, be sure to walk the home with the assessor and point out the good points as well as the deficiencies. This will ensure you receive the fairest possible valuation for your home.
Allow the Assessor Access to Your Home
You do not have to allow the tax assessor into your home. However, what typically happens if you do not permit access to the interior is that the assessor assumes you've made certain improvements such as added fixtures or made exorbitant refurbishments. This could result in a bigger tax bill.
Many towns have a policy that if the homeowner does not grant full access to the property, the assessor will automatically assign the highest assessed value possible for that type of property—fair or not. At this point, it's up to the individual to dispute the evaluation with the town, which will be nearly impossible unless you grant access to the interior.
The lesson: Allow the assessor to access your home. If you took out permits for all improvements you've made to the property, you should be fine.
Look for Exemptions
Exemptions don't just apply to religious or government organizations. You may qualify for an exemption if you fall into certain categories. Some states and municipalities lower the tax burden for:
- People with certain disabilities
- Agriculture properties
- Homestead exemptions
Check with your taxing authority to see if you qualify for an exemption.
Appeal Your Tax Bill
If you've done all you can and haven't managed to get your tax assessment office to see things your way, don't fret. You still have another option available: the tax appeal.
Filing a tax appeal may cost you a small filing fee, which is paid to have someone review your appeal. The tax appeal generally requires the help of a lawyer. Your attorney will likely charge you a fee—sometimes a portion of the savings on your tax bill if your appeal is approved. Your appeal should be filed in a timely manner; otherwise, you're stuck with the bill you receive from your local tax office.
Your lawyer will go through the steps of the appeal and what information is required. In some cases, you may need to take photos and provide details on the current condition of your property. The board will then review this information, compare it to the most recent assessment and tax bill, and make a decision. You may hear something instantly, or it could take a few months for the reviewer to come up with a decision.
If the board approves your appeal, it will only lower the assessment on your home—not your effective tax rate. Although you will still be taxed at the same rate, it will result in a reduction in your tax bill.
Keep in mind, though, that the appeal process is not a guarantee that your bill will drop. It may remain the same or, in rare cases, it may increase if the reviewer feels your assessment is too low.
The Bottom Line
It can be hard to balance the desire for a beautiful home with the desire to pay as little tax as possible. However, there are some little things you can do to reduce your property tax burden without resorting to living in a dump. Avoid making any improvements right before your house is due to be assessed. Check out the neighbors—if they pay less tax than you but own a similar home, you may be in line for a tax reduction. You just have to ask for it.
The most important thing to remember is don't assume your tax bill is set in stone. A little homework and due diligence can help reduce the burden.