What Does 2022 Have in Store for Property Taxes?

Homeowners should be prepared to pay up in 2022.

Owning a home means more than just covering a mortgage payment. It also means having to deal with peripheral costs, like maintenance, repairs, insurance, and property taxes.

But homeowners across the country may be in for some unpleasant surprises this year when it comes to the latter. That's because there's a good chance property taxes will jump in 2022, and for good reason.

Why homeowners should anticipate property tax hikes

To understand why property tax increases may be in store for a lot of people this year, it's important to know how they're calculated. The formula is actually pretty simple.

Property taxes are the product of a home's assessed value (which is basically what it's likely to sell for) multiplied by its local tax rate. Home assessments tend to change more frequently than tax rates. In fact, they can change on a yearly basis.

Right now, property values are up across the board. As of October, home prices had increased 17.4% from a year prior, according to the most recent Federal Housing Finance Agency (FHFA) House Price Index. And because home values are up, assessed values are higher, which is apt to lead to higher property taxes.

Now, say your local tax rate is 1% and your home's assessed value last year was $200,000. That means you'd be looking at a $2,000 property tax bill. But if your home is now worth more like $235,000, suddenly, you're looking at a property tax bill of $2,350. In some parts of the country where property tax rates are much higher than 1%, an uptick in home values could leave a lot of homeowners struggling to pay their bills this year.

What to do if your property taxes go up

Normally, when you're faced with a property tax hike, you have the option to appeal it. What you're actually doing in that situation is appealing your assessment. You can't argue your local tax rate because that's determined by your municipality.

During periods of moderate home price gains, it's easier to argue that your home has been assessed for more than what it's actually worth. But right now, a higher home assessment might actually be accurate. And if homes in your area that are comparable to yours have recently sold at prices that are similar to your latest assessment, then you're going to have a hard time arguing that you've been over-assessed.

This doesn't mean fighting a property tax increase is a lost cause. But it means you may have difficulty doing so.

Before making that call, do some research and see what similar homes in your area have sold for. If your home is being assessed at $400,000 but comparable homes nearby recently sold for $350,000, you can make the argument that your assessment is wrong. But if you're only seeing comparable homes in your area that sold for around $400,000, then your property tax appeal may end up being fruitless.

Now, if you do get stuck with a higher property tax bill this year, rest assured that you won't necessarily have to pay those larger taxes forever. If home values settle back down, your assessment could shrink and your property tax bill could follow suit. But for now, you may need to make some budget changes to account for the highest property tax bill you've had in a while.