Nov. 8, 2018.
If you own a home, you’ll pay property taxes. But the amount you pay can vary quite a bit, depending on where you live. Finding your homeowner’s tax rate is the first step to know how much you can expect to spend. The second step is finding new ways to save on your tax bill.
What is homeowner’s tax?
Your homeowner’s tax is your property tax.
These annual taxes are:
- Paid by the homeowner.
- Usually calculated by your county.
- Based off your property value, including any land owned.
- Used to pay for local school districts, utilities, and governments.
The average homeowner pays $2,197 in property taxes each year, according to the latest U.S. Census Bureau numbers. The National Tax Lien Association also shows that over $14 billion in property taxes aren’t paid every year — which means a lot of homeowners are looking for helpful ways to make this annual bill more affordable.
You could also pay a much different property tax amount compared to your neighbor in a different state. Hawaii has the lowest property tax rate, for example, at 0.27 percent, adding up to $1,459 yearly. New Jersey has the highest property tax rate of all at 2.40 percent, and homeowners there are paying about $7,601 a year. Live in a state with a lower median home value, like Alabama, and you may pay only $550.
Buying a house can be easy, and owning one can too. Click here to get your tax questions answered fast and find out your tax rate.
Why do I have to pay it?
It may be jarring to hear about this extra tax you’ll have to pay once you become a homeowner. But there’s a good reason.
Homeowners pay property taxes to:
- Support your community. The property taxes you pay normally go to local schools, social services, road and bridge development, police and fire departments, and other city or county services.
- Keep services running. If your local government needs extra money to maintain itself, homeowners like you can probably expect to pay more property taxes to meet the budget.
- Fund the extras. It’s not all business. Your property taxes pay for local amenities too, including parks and rec, hiking and walking paths, and even sidewalks and street lights.
The rules and rates for property taxes generally depend on where you live. Every local government has different needs. Your local taxing authority calculates your property tax rate annually. This number is tallied off real property assessments, so your homeowner’s tax could change each year because of fluctuations in fair market property values.
How much will I pay?
It varies. As WalletHub’s latest report showed, you could be paying anywhere from over $500 to just shy of $8,000 a year depending on your state.
Property taxes are determined by property value, and when you’re looking into how they’re calculated, you’ll probably hear something about the “millage rate.” The millage rate, or mill rate, for property taxes is the amount taxed for every $1,000 in property value. A 1 mill rate will charge you $1 for every $1,000 of your assessed property value. You’ll see the millage rate calculated to the tenth of a percentage. This number is set by your local taxing authority.
A quick example:
- Your assessed property value is $100,000.
- Your local millage rate is 10 mills.
- 10 mills converted to a decimal tax rate is 0.01.
- The assessed value of your property at $100,000 multiplied by your mill rate at 0.01 = $1,000 in property taxes.
You can also figure out your property tax rate another way, by dividing how much you pay in property taxes each year by your home’s market value. So, $1,000 in property taxes divided by a $100,000 assessed property value equals an effective tax rate of 0.01 percent.
What will my property tax bill look like?
You can take a peek at a sample property tax bill here, though again, the contents of your property tax bill may be slightly different depending on your state.
The National Tax Lein Association says that some of the most common terms on your property tax bill may include:
- Assessed value – The taxable value of your property that holds your overall “tax burden.”
- Fair cash value – The amount your house can be sold for between a buyer and a seller, i.e., its fair market value.
- Equalized assessed value (EAV) – The number you get when your state’s Equalized Factor or Multiplier — the tool used to bring all property assessments to the same level — is applied to your property’s assessed value. Your tax bill owed is your EAV, minus any homestead deductions, multiplied by your tax rate.
- Exemption – A portion of the EAV of your property may be exempt from taxes, i.e., when claiming a homestead exemption.
- Tax rate – The amount of tax due, noted as a percentage.
- Taxing district – Your local government that has the authority to tax your property.
- Tax code – A number used by your county clerk to reference several taxing bodies.
Property tax bills are mailed out once a year, normally in the fall. Some counties also let you log in, access your bill, and pay it online. Taxing authorities may let you break your property tax bill into two installments — one in the fall and one in the following spring — to split up the payment and make it manageable. Failing to pay in full could tack on an accumulating monthly penalty.
How can I save on my property taxes?
Many homeowners notice their property taxes go up year after year as the assessed value of their house increases. Objectively, this is a good thing. Upgrading your home can improve your property value, while potentially increasing your property taxes. Nearby homes selling a high price, plus new schools being built, are signs your area is booming, and these factors can up your property taxes too.
The good news: You have quite a few options if you want to save on your property taxes, even as your home appreciates. And it’s worth checking into. You may fall in the 60 percent of homeowners who are overpaying.
You can check out our blog for the full scoop on how to save, and here are the highlights:
- Request your property tax card from the local assessor, review it, and look for errors.
- Look up your neighbor’s property tax bills online and check to see if your home has been valued fairly.
- Contact your local tax office and find out what you need to do to appeal your property tax bill.
- Pay for an independent appraisal out-of-pocket and potentially benefit from long-term tax savings.
- Hire an attorney to dispute your taxes, one who bills contingent on the first year of your property tax savings.
- Request more info on your state’s tax breaks for homeowners, veterans, seniors, and more.
- File a homestead exemption with your county property appraiser and tax-shield thousands of dollars of your home’s assessed value if you’re approved.
If you have property tax questions, we have answers. Visit Tax-Rate.org to calculate your homeowner’s tax rate in your state and make homeownership easy.
For educational purposes only. Please contact a qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.
Cornerstone Home Lending, Inc. and its affiliates do not provide tax advice. Please consult your professional tax advisor for specific guidance.