Why Homeowners Across the Country Should Prepare for Higher Property Taxes

Property taxes are unavoidable, and this year, yours may go up for one big reason.

Right now, it's a good time to sell a home. But it's a bad time to buy one for one big reason.

Property values have soared on a national level as low inventory and competitive mortgage rates have fueled a surge in buyer demand. That puts sellers in a great position to walk away with big profits.

But what if you have no intention of selling your home, even as its value continues to climb? If that's the case, you may need to brace for a very unpleasant financial surprise.

Prepare for your property taxes to soar

Property taxes are an unavoidable expense that homeowners face. And in the coming year, a lot of people could see their property tax bills go up.

Property taxes are calculated by taking your local tax rate and multiplying it by the assessed value of your home, which is generally the amount it would sell for in the current market. Say you have a home worth $300,000, and your local tax rate is 1%. That leaves you with an annual property tax bill of $3,000.

What's happened over the past year is that home values have risen substantially across the board. Specifically, home values shot up 13.2% in May of 2021 compared to May of 2020, according to Zillow. And higher home values could lead to higher taxes.

Now, let's say your $300,000 home is now worth about $340,000 when we account for that increase. Assuming your tax rate stays the same, your property tax bill will climb to $3,400.

How to cope with rising property taxes

If you're anticipating a property tax hike, one of the best things you can do is take a look at your budget and find ways to make up for it. Going back to our example, say you're looking at a tax bill that will increase by $400. If you're currently spending about $400 a year on a gym membership, you may need to cancel it until you can figure out a better way to cover your increased property taxes.

You can also try to reduce your property taxes. If you feel your home has been assigned a value that's too high, you can appeal your property's assessment. But doing so is tricky. You'll need to prove you were over-assessed by pointing to comparable homes in your neighborhood that recently sold at lower prices. Getting at that data can be time-consuming, and if there weren't many recent sales where you live, you may hit a wall. But if you're willing to put in the time, you can look at sites like Zillow to research recently sold homes.

Rising property taxes are never fun, but the fact that home values are up isn't all bad. Not only does that open the door to a higher profit if you were to sell, but you may also have more options for borrowing against your home.

Fortunately, home values won't be so high forever. And you may only have to endure a year or two of higher property taxes before your bill begins to shrink back down.