From the moment you begin to consider buying and owning property -- before you close, when you're trying to figure out what fits into your monthly payment -- property taxes are a major consideration. They are part of the PITI (principal, interest, taxes, insurance) that lenders add up to determine monthly costs and compare against your monthly income to figure out your debt-to-income ratio…and thus, whether you can afford the property. But what do property taxes pay for? And are they different from real estate taxes?
What do property taxes pay for?
Property tax dollars pay for a number of public services that are important to the community. Key among them:
|Public safety services and personnel||• Fire stations, vehicles, and firefighters.
• Police stations and police officers.
• Emergency personnel including 911 dispatch.
|Road maintenance||• Sidewalks.
• Street cleaning.
• Traffic lights.Road signs.
• Road repairs, including routine maintenance and road construction.
|City/community recreation areas||• Parks.
• Recreation trails.
|Public schools||• Teacher salaries.
• Enrichment programs.
• Athletics programs.
• Facility improvements.
The debate around property taxes for public schools
While some states no longer rely primarily on local property tax to fund the public schools, some local tax does go to pay for local schools in every state. Some states have shifted to put the greater burden on state taxes or at least to have the state oversee more closely what the local communities are doing, including:
- The amount that taxes are being raised.
- Any special levies.
- How the taxes are being spent.
Using revenue from property tax to support public schools isn't something that everyone always agrees on -- presumably because property owners with no school-age children in the public system may not want to pay for others' public education, particularly if it requires special assessments that their neighbors in the community vote to levy.
However, good public schools are one of the key factors that make a neighborhood desirable to reside in long-term and thus bring in people who are willing to pay more for housing and want to take care of the neighborhood -- thus increasing the value and character of a neighborhood over time. So from that perspective, there are benefits even for property owners without school-age children in the public school system.
Extra taxes beyond the annual assessed amount
Local levies and special assessments are two ways that property taxes can be increased specifically to generate more money for specific projects or initiatives that will benefit the community.
School levies are commonly voted in by the community to raise funds for school supplies, staff salaries, enrichment programs, enhanced classroom programs such as special education, and other education improvements.
Special assessment taxes are different in that they are only required from those property owners who will directly benefit from whatever special project the funds are being used for. So, for example, if the city decides to remove an abandoned building, turn it into a recreational space, and improve all the sidewalks around it, only the neighborhood around that lot and improvement will be levied additional tax, not the entire town.
Real property taxes are real estate taxes
People often ask what the difference is between real estate taxes and property taxes. It's a question that can only be properly answered by understanding the terminology.
Property taxes is a short and casual way of referring to real property taxes, which are the taxes that all property owners pay on immovable property, meaning the land itself and the structures permanently built on it. This is the same as real estate taxes, and everyone who owns real estate pays them for each piece of property owned, including the structures and improvements built on it.
Personal property taxes also refers to taxes on movable personal property. That means vehicles, including mobile homes and recreational small vehicles. Currently, 43 U.S. states impose this tax to some extent.
How is your property tax bill decided?
Property tax amounts are decided by the local tax assessor, who decides how much a property is worth (assessed value) and multiplies that by the local property tax rate. Property taxes are assessed based not only on the land but on all structures and "improvements," so if you've made significant upgrades, such as adding a swimming pool or guest house, your property tax may increase along with your assessed home value. If you don't agree with your property tax assessment, it is possible to appeal it.
Can you deduct property taxes?
Real property taxes improve the community
While many people dislike property taxes immensely, and almost everyone heaves a sigh when the property tax bill arrives, the money goes directly into public services that benefit the neighborhood. Nobody wants potholed roads, broken sidewalks, bad schools, or a generally unsafe neighborhood. The better conditions you want in your neighborhood, the more you can expect to pay toward funding them.
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