How to lower your property tax
Home values are up across the country and many of us are feeling the pinch with increases to our property tax. Maybe you are looking for ways to lower your property tax.
It can be infuriating to hear that your property tax is going up because you might feel that you have very little insight into over how the assessment was made, and are not sure what you can do about it.
Median property tax rates vary by state from 0.18% of home value to 1.89%. In states with high median property taxes, some counties have annual property taxes above 2% of home value!
Here, we will address why property taxes go up, how they are assessed, what you can do to lower your property tax and how to appeal your property tax amount.
Why do property taxes go up?
There are two reasons that your property taxes might go up. The first reason is, if your home value increases.
Your property tax is based on your municipal “millage rate” (tax rate), which is a percentage of your home’s value, set by your local government.
For example, if the millage rate in your area is 1% and your home value is $500,000, your property tax for the year would be $5,000. If your home value increased to $550,000, due to home appreciation and/or home improvement, your annual property tax would rise accordingly to $5,500.
The second way your property tax can go up is by the millage rate itself going up. A tax rate increase comes from your local the taxing authority to increase (or decrease) the millage rate. Your local government figures out how much revenue they need from property owners for the school system and other needs and adjusts the millage rate accordingly within the limits of what is legal in your area.
How is home value assessed?
The value of your property is supposed to be based on the fair market value at the time of the assessment. Things that can affect the fair market rate are the inflation rate, interest rates, and the current housing market in your area. If you make improvements to your home, such as extensive renovations or the installation of a swimming pool, for example, this can also affect your property’s assessed value, and, removing improvements can also affect the assessed value by making your home value go down.
An assessor is assigned to evaluate a property or group of properties simultaneously and compare your property to similar properties that were recently sold.
In some areas, property tax is NOT based on only the home’s assessed value but on the level of assessment for the municipality. What this means is that a percentage is applied to the home’s assessed value and the property tax is based on that. In the example above, if the millage rate is 1%, the assessed value of the home is $500,000, but the level of assessment is 20%, the millage rate will be calculated on $400,000 ($500,000 x 20%) and the annual property tax will be $4,000.
You can find out the details of how your town determines your tax rate and level of assessment by contacting your local government, or in many cases, your state will list property tax information by area that describes the way your property tax is calculated. Here is an example from New York State.
It’s important to know how your particular property’s property tax is calculated as it give you the information you need in order to determine if you are being charged fairly.
What can you do to lower your property taxes?
In order to lower your property tax, you have one of three options. You can 1) get the assessed value of your home down either by removing improvements (“honey, you didn’t really want that nice sunroom anyway, did you?”), which might be a little bit drastic, or, by contesting the assessed value if you think it is unfair, 2) get involved locally to get your municipal tax rate down, and 3) make sure you get any tax breaks available to you.
Figuring out your home’s value
The first thing you want to do is to determine what your assessed home value actually is. Towns typically release data about every property and their assessed value at a certain time each year. Contact your local government and get the correct information for the current year. You will want to know both the appraised value and also the level of assessment for your municipality (see above). You also want to make sure that the information that they have on your home is correct – that if you have three bedrooms that their records don’t mistakenly say four bedrooms, for example – as this can naturally affect your home’s assessed value.
Second, you should figure out what you believe to be the market value of your home. We have a free guide that you can use to get a fairly accurate idea of what the current value of your property is.
Getting involved locally
There are many successful efforts by homeowners to reign in their property taxes. One of the most powerful is Proposition 13 in California that says that assessments can only be made when property changes hands or there is new construction, and that property tax is capped at 1% of home value. Oh how the folks in New Jersey, the state with the highest property tax, would love that!
Make sure that you are taking advantage of any property tax breaks available to you!
Property tax laws vary from town to town and there may be some tax breaks that you can take advantage of, such as rebates for low to middle income homeowners, or credits based on your status as a disabled person, senior citizen, or veteran. There are many other types of exemptions or credits and they are usually something you need to know about and apply for, instead of being automatic.
Do a search online for your area for any available tax breaks and contact your taxing authority so that you don’t overpay.
How do you appeal your property tax?
If you have figured out that your assessed value is higher than what you believe that your home is worth, based on your own analysis, then you definitely want to appeal your property tax, particularly if there is a big difference.
First, spend some time Googling how to appeal property tax in your state, as some states have guides that they publish, like this one from New Jersey. There are several steps that are in common between states, but, you’ll want to know if there are any specific tips and timing for dealing with your own state’s own particular brand of bureaucracy.
Most of all, you’ll want to know the timing of the appeal process. In many cases, property tax assessment appeals take place within the first few weeks or months of the annual assessment.
Second, schedule an informal meeting with your assessor, if you can. This is a simple way of sharing information that can be helpful to both of you and can lead to the assessor adjusting your home value down without having to jump through the hoops of an appeal.
If you can’t schedule a meeting with your assessor, you can most likely submit materials to the assessor by mail or electronically that support your request for a lower home value. Maybe your property is subject to flooding, or there is some other reason why your property seems like it should be worth more than it actually is? You’ll want to show the evidence you have of why your believe your home value assessment is not accurate.
Third, if you still can’t get the assessment adjusted, you can go through a formal process. Typically, you file an appeal, and then you have a hearing scheduled with the tax board. Homeowners don’t generally need to have an attorney at these hearings (but businesses sometimes do). If you feel like you need more ammunition for the hearing, you can also consider paying for a formal appraisal of your home to submit as evidence, which can run you between $250 and $400, but this is not always necessary if you already have a lot of proof.