What could be worse than your home losing value? Paying taxes based on its old, higher value.

During the real estate boom, the appraisals that state and local governments used to assess property taxes went through the roof in many areas. Pointing to state laws that often require valuations that reflect changes in fair market value, tax assessors argued that they had no choice but to hike taxes. While some homeowners found themselves with tax bills that were difficult to afford, the governments that collected those taxes came to rely on them for funding.

But now that prices have started to fall, don't assume that your property taxes will immediately reflect those lower home values. If your tax bill reflects a value that looks too high, challenging your assessment can save you hundreds of dollars. After all, you shouldn't pay any more than your fair share in taxes.

A big problem
Inflated property values for tax assessments aren't unusual. The National Taxpayers Union estimates that as much as 60% of all property nationwide is assessed for more than it's worth.

When you look at big business, you see numerous cases where companies successfully reduce or even eliminate property and other taxes. According to Greg LeRoy, author of The Great American Jobs Scam, companies such as Wal-Mart (NYSE:WMT), Dell (NASDAQ:DELL), Boeing (NYSE:BA), Cabela's (NYSE:CAB), and Fidelity Investments often obtain substantial tax concessions from state and local governments in the areas where they do business.

Yet many individual taxpayers never think to fight their assessments. Restrictive deadlines sometimes give homeowners little time to prepare their case. In addition, when you contact your local assessors, they may tell you that challenging your valuation opens the door to a possible increase in assessed value -- an attempt to discourage you from arguing against them.

You can win
Nevertheless, if the facts are on your side, you can prevail in a fight to lower your tax assessment. The evidence you'll need is similar to the information that experts use to appraise your home for mortgages or for prospective buyers -- things like sales of nearby comparable houses, vital statistics about your home, and the general condition of your neighborhood. In addition, if you recently bought the property, and paid a lower price than your assessment, that's compelling evidence that the assessed value is wrong.

In general, you should be able to handle your dispute on your own, without an attorney. Local assessors should helpfully tell you what you need to do to challenge your tax bill. Depending on local laws and practice, your challenge may involve an inspection of your property, as well as a hearing before an appeals board.

Win or lose, trying to cut your property taxes is often worth the effort. If your local taxes are slow to reflect the realities of falling home prices, giving your assessor a nudge in the right direction can keep more money in your pocket.

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Fool contributor Dan Caplinger is planning a visit to his assessor in the next few months. He doesn't own shares of the companies mentioned in this article. Wal-Mart and Dell are Inside Value recommendations. Dell is also a Stock Advisor pick. Cabela's is a Hidden Gems recommendation. The Fool's disclosure policy is as safe as can be.