This is about the time of the year, every year, where I wish there was a rewind button. November and December are filled with holiday fun, extra days off, and getting together with friends and family. Then January hits and "wham!" -- all of your credit card bills from December become due and Uncle Sam comes knocking at your door to get you to do your taxes by April 15. Happy New Year, right?

Taxes are an unwelcome but necessary process that the majority of Americans must endure to ensure that our government and military have the proper funding to continue to operate. In addition to paying the salaries of our elected officials and armed forces, taxes also help fund social programs like Social Security and Medicare, as well as provide funding for schools, prisons, and clinical research projects, just to name a few other funding aspects.

To sum that up: We don't like taxes, but we know we have to pay them!

Tax Forms

Source: Philip Taylor, Flickr.

America's most hated tax
What we learned in November, though, after combing through a poll from Gallup is that not all taxes are created equally among Americans. In other words, some taxes are hated more than others. The Gallup poll asked respondents to list their most-hated tax out of a list of five possible tax choices, which were then compiled into the results that we looked at here.

Long story short, property taxes came out on top as America's most hated tax by a long shot, with 42% of all votes. The reasoning is pretty simple. For many homeowners, their property tax bill can be higher than what they owe in federal and state income taxes, making it their largest annual expense. In addition, because home prices have fluctuated so wildly over the previous five years, there's no guarantee that homeowners are paying an accurate property tax on their home's assessed value. Finally, there's also no uniform rhyme, reason, or formula to property taxes as it's dealt with on a county-by-county basis, making the opaqueness of the issue even more frustrating for taxpayers.

Yet property taxes themselves make up a large chunk of revenue for individual counties. According to a study (link opens a PDF) released in mid-November by Benjamin Harris and Brian David Moore from the Urban-Brookings Tax Policy Center, 34.6% of all local revenue is generated by property taxes, with local sales tax making up a good chunk of the remaining revenue. Without these funds, many locales would simply be unable to update their infrastructure, support schools, or pay for other basic needs such as a police or fire department.

10 states with the highest property taxes
Today, I want to take a closer look at the 10 states with the highest property taxes in America, for a few reasons. Obviously, knowledge is power, so understanding why certain regions of the country tax higher could help homebuyers make a more educated decision about their home purchase. More importantly, though, as we near the heart of tax season, there are some steps you can take as a homeowner that you may be forgetting, which could help save you money. Those tips would be especially useful in states that have the highest property taxes.

Without further ado, here are the 10 states with the highest mean property taxes, according to the Tax Policy Center's study:

State

2012 Mean Property Taxes Paid

New Jersey

$7,318

New Hampshire

$5,230

Connecticut

$5,200

New York

$5,040

Illinois

$4,469

Vermont

$4,328

Rhode Island

$3,820

Massachusetts

$3,805

Wisconsin

$3,530

Alaska

$3,290

Source: Tax Policy Center.

As you can see, geography can play a sizable role in property taxes. Because New England is predominantly developed and there's only a finite amount of land available, property values and property taxes are generally high in the region. Infrastructure needs also come into play, with higher population density areas needing far more revenue generation to maintain roads and bridges. This is primarily why you see almost every New England state on the list, as well as Illinois and Wisconsin.

But, this list is also a bit deceiving because it doesn't factor in property value. By that I mean you can purchase an identical house in one locale that could set you back $1 million that, in a different state or county, may sell for one-quarter of that amount or less. Everything depends on location, infrastructure, the availability of land, population density, and demand.

Let's have another look at these figures, but this time let's look at it as the 2012 property tax as a percentage of home value.

State

2012 Mean Property Taxes Paid

Property Tax as a Percent of Home Value

New Jersey

$7,318

2.32%

New Hampshire

$5,230

2.18%

Connecticut

$5,200

1.88%

New York

$5,040

1.68%

Illinois

$4,469

2.28%

Vermont

$4,328

1.62%

Rhode Island

$3,820

1.67%

Massachusetts

$3,805

1.19%

Wisconsin

$3,530

2.07%

Alaska

$3,290

1.28%

Source: Tax Policy Center.

While you can still see that these 10 states all pay cumulative property taxes well above the national average, property taxes as a percentage of home value that select homeowners pay can be much higher from one state to the next.

Massachusetts residents, for instance, may pony up $3,805 for property taxes on their home, but at only 1.19% of their home's value it means Massachusetts homes are often worth a lot. By comparison, Wisconsin residents paid 265 fewer dollars, but they had to pay 88 basis points more on their homes than residents in Massachusetts in 2012! It usually all comes down to a state's need for infrastructure and educational improvements.

How understanding your property taxes can put more money in your pocket
While highlighting the 10 states with the highest property taxes in America can be fun for a numbers guy like myself, the real fun comes when I tell you that there are two commonly overlooked ways to save yourself money when it comes to property taxes.

The first method might seem like common sense, but you wouldn't believe how many people, especially new homeowners, forget that you can claim your property taxes paid as a deduction. I know it's a bit odd that you can claim a deduction on a tax, but the overall goal by the IRS is to ensure that you don't pay income tax on money going to pay your property taxes.

Now one tricky aspect that can sometimes trip up homeowners that you'll want to keep a close eye on is that you can only deduct the amount of property tax paid to your county each year. This means for those of you like myself who have their property taxes lumped in with your mortgage payment and shuffled into an escrow account on a monthly basis, you'll want to ensure you're only claiming what the escrow account pays in property taxes on your behalf in a given year and not necessarily what you put into the escrow account in a given year. It's a minor error that can sometimes have big implications.

The second method, which is often overlooked, is the ability of a homeowner to request a reassessment of his or her property value. Because property values directly correlate to property taxes, if you feel your home is worth considerably less than your currently assessed value, it would be in your best interest to further investigate whether the county assessor has levied an accurate value on your home.

The easiest way of going about this is first to acquaint yourself with your county's property tax code laws, which can often be found online or at your county's assessor's office. Once you understand the process, you can view the assessment for your own property to look for mistakes. According to Pete Sopp, a spokesman for the National Taxpayers Union in an interview with MSN, the inaccuracy rate on assessments is anywhere from 30% to 50%, depending on the region. Most of these errors are minor, but the larger ones can result in hefty savings. After reviewing your assessment, you should check out similar homes that have sold in the area to determine whether your home could actually be sold for its assessed value. If the figures don't add up, it could be time to make an appeal to your county's assessor.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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