One of the financial responsibilities of homeownership is paying property taxes. Local governments levy these taxes and use the revenue to fund community projects and public services, such as schools, libraries, road construction, fire departments, law enforcement, and public recreation.
While property taxes are a key income source for local governments, they can be a financial burden to homeowners -- especially because taxes tend to increase over time. And as long as you own property, you’re going to owe taxes, even after you make that last mortgage payment. If you think you’re overpaying, you may be able to take advantage of these six tips to lower your property tax bill.
How are property taxes calculated?
Property taxes are an ad valorem tax -- that’s Latin for "according to value" -- so they are based on the assessed value of your property, including the land and any buildings on it. A property tax assessor determines that value, typically every one to five years, depending on where you live.
The simplest assessment method is to estimate your property’s fair market value (FMV). In simple terms, that’s the price a willing buyer and a willing seller would agree on in an open market.
To determine FMV, an assessor compares your property to other similar properties in the area. These are called comparables, or "comps" for short. Assessors may also consider the value of any recent improvements you’ve made, any rental income potential, and the replacement cost of the property.
To calculate your property tax bill, multiply the assessed value by the local tax rate. If your home has an assessed value of $200,000, for example, and the local tax rate is 1.2%, you would owe $2,400 in property taxes.
How to lower your property tax bill
If you think you’re paying too much, try these six tips for lowering your tax bill.
1. Welcome the assessor
You can help avoid bad assessments from the outset by giving the assessor full access to your property -- inside and out. If you don’t, the assessor has to make assumptions about interior features and any improvements you’ve made. Those guesses, of course, can ultimately drive up your tax bill.
2. Review your property tax card
Request a copy of your property tax card from your local assessor’s office. Some of this information may be available online; check your county administrator’s website.
Review the card and check for errors in square footage, the number of bedrooms and bathrooms, the year of construction, and the type of heating/cooling. Look closely for any discrepancies on special features, improvements, and the structural condition of your home.
3. Compare homes in the neighborhood
Property tax bills are public information, so you can find out how your home’s assessed value stacks up against other homes in the neighborhood. Of course, this only works if the homes are reasonably comparable (i.e., roughly the same size and with the same characteristics). If they are -- and your home is valued much higher -- it can signal a mistake in your home’s valuation.
Another thing to look out for is whether you bought your house for much less than the valuation. Of course, this argument won’t work if you bought a foreclosed home (the assessor won’t consider that a valid market sale). But if you paid less than the assessed value and the sale was an arm’s length transaction, there’s a chance the tax office will take a closer look.
4. Consider an independent appraisal
If your property tax card reveals a lot of discrepancies, or your home’s assessed value is way off compared to your neighbors, it may be worth paying to hire an independent home appraiser. If you don’t know an appraiser, ask a local real estate agent for a recommendation or search on the American Society of Appraisers website.
Make sure the appraiser has experience evaluating your type of property and is a member of the local multiple listing system (MLS) -- otherwise, they may have trouble providing an accurate appraisal.
5. Present your case -- with evidence
If you still think you’re paying too much after doing your homework, visit your local tax office to find out about property tax appeals. Pay special attention to any deadlines for filing paperwork. And if there’s something you don’t understand about the appeal process, don’t be afraid to ask questions.
The appeals board is more likely to take your case seriously if you are well-organized and can show supporting evidence -- whether it’s wrong information on the tax card or a valuation that’s out of line for similar homes in the neighborhood.
6. Ask for tax breaks
Even if your property has been assessed fairly, you may still be able to lower your taxes. Many states offer reduced property taxes -- or programs that cap the amount of tax owed -- to homeowners who meet certain requirements. These include tax deductions and exemptions for seniors, veterans, surviving spouses of veterans, people with certain abilities, and owners of agriculture properties.
Most states also offer homestead tax breaks that exempt a certain dollar amount or percentage of your home’s value from property taxes. To qualify for a homestead exemption, the property must be your primary residence (i.e., you must live in it). You’ll also have to meet at least one of your state’s requirements for age, income, military status, or disability.
One other tip worth mentioning: Some cities and counties offer discounts if you pay your bill early. If you live in Miami-Dade County, for example, you can get the following discounts:
- 4% if you pay in November
- 3% if you pay in December
- 2% if you pay in January
- 1% if you pay in February
- Full amount if you pay after that
Check with your local tax office to see if discounts apply.
Deducting property taxes
Property taxes help pay for projects and services that benefit the entire community, but they can still be a burden on homeowners. To make sure you’re not overpaying, take advantage of any tax breaks you might be entitled to and verify that your home has a fair tax assessment. If it doesn’t, file a tax appeal with your local assessor’s office.
One final note: If you pay property taxes, you can count it toward your itemized deductions when you file your tax return. This can be an indirect way to save money on your property taxes, but you can’t deduct more than $10,000 in combined state and local taxes (SALT), including property taxes. Speak with a qualified tax specialist if you have questions about your tax situation.
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