What are property taxes?
Property taxes are paid by homeowners and help cover the costs of services in a community, such as public schools, emergency services, policing, and road maintenance. If no one paid property taxes, those potholes might never be fixed and the high school down the street might not be able to open its doors.
Property taxes matter: They accounted for $ 547 billion in revenue for state and local governments in 2018, according to the Urban Institute, more than revenue from sales taxes, income taxes, and taxes. companies.
For most homeowners, the second most important expense after the mortgage is property taxes. The cost of property taxes varies from place to place as local governments set property tax rates. In 2020, the average property tax on a single-family home was $ 3,719, according to an analysis by ATTOM Data Solutions. In Acadia County, Louisiana, the average property tax was barely noticeable, at $ 456. In Marin County, California, by comparison, taxes were over $ 13,000.
Exorbitant property taxes can make homes unaffordable for retirees living on a fixed income, as well as for people who lose their jobs, divorce, or take a hard hit on their income for some other reason. They can also influence the housing market, making it more difficult for entry-level buyers to afford neighborhoods with higher property taxes.
How are property taxes calculated
Depending on your jurisdiction, your property tax is usually calculated as a percentage of the fair market value or the assessed value of your property. The difference between assessed value and fair market value is that the former is determined by an appraiser solely for the purpose of collecting taxes. Fair market value is basically the selling price of the property based on what sellers and buyers agree to for similar properties in your area.
Although you pay property taxes annually or semi-annually, your property may not be assessed every year. For example, in Cook County, Illinois, different sections of the county are reassessed every three years. Assessments are often based on statistical modeling instead of in-person assessments.
If a homeowner thinks their property is overvalued, they can challenge the appraisal, says Adam Wogsland, real estate attorney at SW&L PC in Fargo, North Dakota.
âYou have the right to appeal,â says Wogsland. “At Fargo, you can call and dispute the appraised value of your home. They usually don’t change it on the basis of a phone call, but you can try.”
Ways to pay property taxes
Are property taxes included in a mortgage loan? Many homeowners invest in their property taxes each month through their mortgage payment. While the extra money is added to the mortgage payment – usually arranged by your mortgage lender when you buy your home – it’s a separate bill. Your lender or service agent puts tax money in an escrow account until it’s time to pay.
If you’re a homeowner and aren’t sure if property taxes are part of your mortgage payment, ask your lender or service agent and get the information in writing. If your property taxes are in escrow, your lender must send you a Form 1098 each year.
If you don’t have an escrow account set up with your lender, most counties will take your property tax payment by mail, phone, or online. Check with your local collector on how and where you can make your payment.
Depending on where you live, the tax bill can arrive twice a year or even more. For example, in New York City, some residents receive quarterly bills and others receive them semi-annually; the frequency depends on the assessed land value.
While splitting payments can be useful for your budget, paying a lump sum can make all the difference. In New York, you’ll get a reduction on your property taxes if you pay all year in advance.
If you’ve paid off your mortgage, remember that you are still responsible for paying your property taxes.
Property tax deduction according to the new tax code
Although you have to pay property taxes, your payments could help you save money on your other taxes. Property taxes can be deducted from your income for federal taxes if you itemize your deductions.
Taxpayers who itemize their deductions do so because they could get more money back than they would if they took a standard deduction. They use a form in Schedule A to show how much money they spent on each item. These items include medical expenses, gifts to charity, and state and local taxes (SALT). The SALT deduction is currently capped at $ 10,000.
If you do not detail your deductions, you can benefit from the standard deduction. In 2021, the standard deduction is $ 12,550 for individuals, $ 18,800 for heads of household and $ 25,100 for married couples.
Property tax exemptions
There are several types of property tax exemptions. For example, in Texas, a homestead exemption – which only applies to primary residences – could help you save on your property tax bill. These exemptions vary, but can look like this: If your home is valued at $ 200,000 and you qualify for a $ 25,000 school tax exemption, you will pay taxes as if your home was worth $ 175,000.
Exemptions are also available for the blind, the elderly, veterans and homeowners in difficulty. The eligibility requirements and the amount of the exemption depend on your place of residence.
In some places, homeowners can get property tax reductions for a number of reasons, including installing renewable energy systems and purchasing older homes and refurbishing them.
Since these programs vary by jurisdiction, contact your local tax collector to find out if you are eligible for a reduction or exemption.
What if you can’t pay your property taxes?
Property taxes, mortgage payments, utilities and more – the list of expenses for your home can be overwhelming, and property taxes can seem like a cost you can ignore if you’re strapped for cash. However, paying your property taxes is just as essential as any other bill for your home, and ignoring them can result in a lien on your property, fees accruing, and possible foreclosure.
If you can’t pay your property taxes, contact your lender or service agent as soon as possible to discuss the situation, says William Heyman, a real estate attorney at the Heyman law firm in Maryland. Some lenders have programs that can help homeowners pay their taxes over time.
Other options include borrowing money from friends or relatives or leveraging the equity in your home. If you’re 62 or older, another possible solution is a reverse mortgage, where a lender makes monthly payments based on how much you have in the home.
âIf they have equity in their home but are unable to pay their taxes, they should consider refinancing and using that money to pay their taxes, although that is not a long-term solution,â said Heyman. “If their situation is bad enough, they should consult a bankruptcy lawyer.”
It’s better to sell the house than to lose it in foreclosure, so if taxes are unaffordable, talk to a real estate agent. Even if there is already a lien on your home due to unpaid taxes, an agent can help you make a deal for the new owner to pay the taxes, perhaps in exchange for a lower sale price.
For those who have inherited a home with heavy property taxes, some jurisdictions offer assistance programs, Heyman points out.
When in doubt, talk to a professional – an accountant, lawyer, or advisor who can guide you through the often confusing world of taxes.
Finally, if you haven’t received a property tax notice for a while, it’s time to take stock. When Cook County officials planned to auction houses with unpaid property tax bills in 2019, estimates showed that 21,000 of the 57,000 homes at risk did not even know they owed money. money due to courier errors. Make sure your address is correctly updated with your local authorities to avoid potential confusion or payment default.