It's no secret that Americans don't like to pay taxes. But when push comes to shove, not all taxes are the same in the minds of taxpayers.
According to a 2012 study released by the American Enterprise Institute, property tax paid on your home is unquestionably the most hated tax of all. In fact, more than twice as many people chose property taxes over federal income taxes as their most hated tax, 42% to 20%.
The thing about property tax is that it's an agnostic tax. Regardless of where you live in the United States, you're going to be paying some percentage of tax based on the value of your home. And don't let the 63% homeownership rate in the U.S. fool you one bit. Even though this means that 37% of homes are being occupied by renters, you can rest assured that landlords are passing along the full costs of homeownership, including property taxes, via rent costs.
Long story short, virtually everyone is paying property taxes, one way or another.
Property tax: It's all relative
However, what you'll pay out of pocket in property taxes compared to another person can vary wildly.
Property taxes vary from state to state and often within counties and even cities. Real estate taxes are expressed as a percentage and based on the value of your home, meaning a similar-sized and styled home in the Midwest is probably not going to be valued as much as a home overlooking the Pacific Ocean on California's coast line. Ultimately, it means that your effective real estate tax rate may not accurately tell the tale of how much you'll owe.
A good example is South Dakota. According to real estate tax rankings compiled by WalletHub last May, South Dakota ranked 36th in property taxes with an effective real estate tax rate of 1.36%. Another way of looking at it is this: South Dakota has the 16th-highest nominal property tax rate in the country (the District of Columbia is including in WalletHub's ranking, thus why South Dakota ranks as 16th highest and not 15th). However, the median home price in South Dakota was just $135,700 at the time of the study, which is below the median of $175,700 in the U.S. as of May 2016. In total, the average South Dakota homeowner is paying just $1,840 in property taxes per year, which is nicely below the national average of $2,127.
It's all relative to where you live and how much you're home is worth.
Homeowners in these states are forking over at least $3,000 in property taxes
According to WalletHub's data, there are 11 states where homeowners can clearly expect to pay more than the national average -- at least $3,000 in annual taxes, to be precise. Putting aside the top-to-bottom effective real estate tax rate rankings, here's what the average homeowner would be expected to pay in annual property taxes based on median home values in these states.
- California: $3,021
- Maryland: $3,118
- Wisconsin: $3,266
- Vermont: $3,717
- Rhode Island: $3,883
- Massachusetts: $3,896
- Illinois: $3,959
- New York: $4,478
- New Hampshire: $4,996
- Connecticut: $5,244
- New Jersey: $7,335
Even though California has the 17th-lowest effective real estate tax rate in the country, it has the third-highest median home value (trailing only Hawaii and the District of Columbia), meaning its homeowners are still on the hook for an average property tax bill of $3,021, or more than $250 a month.
The real killer, though, is New Jersey. Residents in New Jersey are dealing with the highest effective real estate tax in the country at 2.29%, and it has the fifth-highest median home value. Put together, this works out to more than $600 a month being set aside for property taxes by the average New Jersey homeowner. By comparison, the average homeowner in Alabama pays just $538 in property taxes all year.
Can you lower your property tax?
On the one hand, property taxes are an essential form of income for local governments. However, the National Taxpayers Union (NTU), a nonprofit taxpayer watchdog group, estimates that perhaps one in every two properties is overassessed in value. This means you as the homeowner may have an opportunity to get your home reassessed and hopefully pay a much smaller property tax bill.
One of the smartest things you can do as a homeowner if you believe your property has been overvalued by an assessor is to compare what other comparable homes in the neighborhood have recently sold for. Gathering information on five to 10 homes that have sold within the past six months and are comparable in size to your own is usually enough evidence to make your case. Best of all, you can probably do this on your own since this is public information.
Next, after receiving your annual assessment, you'll want to take note of the appeal time and procedure in your state, county, or city. Most appeal processes are done in writing and give the individual up to six weeks to appeal. However, it can vary by location. If you miss your opportunity to appeal your assessment, you may be required to wait until your next assessment the following year.
Finally, Pete Sepp, the president of the NTU in an interview with MarketWatch, suggests that consumers go it alone and be professional. While there are professionals who can help make your case that your home is overassessed, Sepp argues that a lot of what you'll save will go to the professionals as payment. Plus, according to Sepp, about 30% of those people who appeal their home valuation tend to be successful. Those are pretty decent odds considering how many homes the NTU suggests are being overassessed. Plus, if you win your appeal, you may be able to lock in a lower assessment for years to come.
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