The money you pay every year in property taxes helps to fund local schools and governments. And that’s the good news. The bad news is that slight increases in property tax can sneak up on you, adding hundreds or thousands of dollars to your yearly tax bill. The average homeowner pays $2,127 in property taxes a year.
Depending on where you live, says WalletHub’s 2016 property tax breakdown by state, there’s bound to be a little wiggle room. State median home values matter, but states feeling the biggest crunch have the highest property tax percentage, or real estate tax rate. The good folks in New Jersey are paying as much as $7335 in annual property taxes on a 2.29 percent real estate tax rate. Compare this to Oklahomans who pay only $998 a year on average at a modest tax rate of 0.87 percent.
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What is property tax, and why am I paying it?
If you’re going to be shelling out several thousand dollars a year, it helps to know where it’s going. Again, property tax rates will vary by state. But according to the great state of Illinois, property tax has been used for the purpose of financing the government dating back before the Depression. While property tax was the main source of state government funding in the pre-Depression era, today it’s used primarily to fund local governments.
The New York Department of Finance breaks it down even further. If you’re a state resident, your property tax dollars may go to:
- Uniform agencies, including police, fire, sanitation, and corrections –5 percent
- Education –5 percent
- Other agencies, including transportation, housing, parks, etc. – 24 percent
- Health and welfare – 19 percent
Your property tax has a purpose — funding local government. The amount you pay in property tax is based on a percentage, calculated from the value of your property. Your property value will normally be assessed by local and municipal governments. This amount can directly affect the amount of annual taxes you pay. The easiest way to calculate your property tax is by multiplying the current local property tax rate by the current market value of your property.
You might hear “mill rate” when discussing your property taxes. Also called the millage rate, this term comes from the Latin word for thousandth. So, 1 mill is 1/1000 of one dollar, or one dollar in tax for every $1000 in property value. Your property may be taxed by different mill rates from different jurisdictions, including county, state, and local school districts. Some states, like Michigan, make this mill rate calculation easy on homeowners by providing an online Property Tax Estimator that includes a millage rate database.
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8 ways to lower your property taxes and get some money back
Now that you understand the rhyme and reason to property taxes, you can also see that there’s a potential to save. Just like the income tax savings you aim for, taking a few actionable steps may make it possible to lower your property taxes by several hundred or thousand dollars a year.
Yes, everyone’s doing it. Or, at least the financially savvy among us are. There are hundreds of organizations set up on the local level to provide independent appraisals and legal guidance on appealing sky-high property taxes. Some companies in the business of property tax appeal estimate their average client savings at $400. Save $400 on property taxes over the life of a 30-year mortgage, and you’ll have an extra $12,000 for retirement, college, or family vacation.
If you feel like you’re being over-taxed, consult our property tax cheat sheet to avoid paying more than you need to this tax season:
1. Review your property tax card.
Get a copy of your property tax card from the local assessor’s office. Check the basic info and look for any errors so you can request a correction or reevaluation. Mistakes are common. You might be overpaying.
2. Get nosy.
No need to bother your neighbors. Property tax bills can be found online in many areas since they’re public information. Compare similar homes by size and age to see if your property has been fairly valued.
3. Talk to your local tax office.
Ask about what you need to do to appeal your current property tax bill (with the goal of getting a lower assessed value so you’ll be taxed less). You’ll likely have to fill out a Property Tax Appeal of Assessment Form to create an initial written dispute. However, requirements can vary by state.
4. Consider an independent appraisal.
Sure, you’ll have to pay extra out of pocket, but a more accurate appraisal could save you that upfront cost and more in just a few short years.
5. Hire an attorney.
There are plenty of people who successfully lower their property taxes on their own using these tips. And yet, there are also companies in business for just this reason, as we mentioned above. One of the biggest reported benefits of hiring a third-party firm is having someone who will handle all your filing deadlines. Look for a third-party rep who doesn’t charge an upfront fee but bills their service contingent on your first year of tax savings. Weigh that against your potential property tax savings to see if it’s worth the cost.
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6. Ask for tax breaks.
Based on state tax exemptions for primary homeowners, seniors, veterans, and more, you may have an extra property tax reduction coming to you. It never hurts to ask.
7. Request a Homestead Exemption.
You can also file this one under “it never hurts to ask.” Most but not all states will let you claim your primary residence as a homestead. This may protect you from creditors and provide an exemption on part of your property tax bill — in some cases, $20,000 or more, depending on your assessed property value. You must apply for the exemption through your county property appraiser. Check for eligibility requirements with your local government.
8. Wait it out.
If you’ve done everything you can, and the odds aren’t in your favor, time may still be on your side. According to Bergen County of New Jersey, where property taxes are the fifth highest in the U.S., property tax rates fluctuate based on how much money a town needs. It’s possible that taxes in your area could lower from one year to the next. And if not, there’s always next year. Remember, you have the right to protest your property taxes every year.
Like we always say, buying a house doesn’t have to be hard. And neither do your property taxes. For help buying a house and beyond, contact one of our experienced loan officers today.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.