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- What are property taxes?<\/a><\/li>\n
- What do property taxes pay for?<\/a><\/li>\n
- Calculating your property taxes<\/a><\/li>\n
- How to pay property taxes<\/a><\/li>\n
- How to save on property taxes<\/a><\/li>\n<\/ul>\n
<\/a><\/p>\n
What are property taxes?<\/h2>\n
Property tax is the tax paid on real estate. Taxing jurisdictions \u2014 like school districts, townships, municipalities, and counties \u2014 levy property tax to generate revenue to pay for infrastructure and services.<\/p>\n
Property tax is typically an ad valorem tax, meaning the amount is based on the value of the property being taxed. Taxing jurisdictions assess properties to determine their value, and then apply a tax rate to that value to calculate the dollar amount the property owner must pay.<\/p>\n
Property tax vs. real estate tax: What\u2019s the difference?<\/h3>\n
As the term applies to real property, property tax is always a real estate tax but a real estate tax isn\u2019t always property tax.<\/p>\n
Property tax is imposed on the property itself, whereas other types of real estate tax, such as a transfer or stamp tax, can be imposed on the transaction that transfers ownership.<\/p>\n
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What do property taxes pay for?<\/h2>\n
All 50 states and Washington, D.C. rely on property tax, whether it\u2019s levied by the state or, more commonly, by local governments and school districts.<\/p>\n
Here are some of the costs your property taxes pay for:<\/p>\n
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- Public schools<\/li>\n
- Police and fire protection<\/li>\n
- Road construction and maintenance<\/li>\n
- Water and sewer systems<\/li>\n
- Libraries<\/li>\n
- Government operations<\/li>\n
- Community services<\/li>\n<\/ul>\n
<\/a><\/p>\n
Calculating your property taxes<\/h2>\n
The amount you pay in property tax depends on two factors:<\/p>\n
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- Local property tax rate<\/li>\n
- Assessed value of the property<\/li>\n<\/ol>\n
To calculate your property tax bill, local jurisdictions will multiply the property tax rate by the assessed value.<\/p>\n
For example:<\/b> If the effective property tax rate in your area is 2%, and the assessed value of your home is $300,000, your property taxes would come out to $6,000.<\/div><\/div>\nProperty tax rate<\/h3>\n
Taxing jurisdictions set tax rates according to how much revenue they need to pay for the services and infrastructure they provide. Each jurisdiction sets its own tax rate, and the rate can change from year to year or stay the same.<\/p>\n
The combination of all the rates you pay \u2014 school district, municipal and county, for example \u2014 is called the effective tax rate.<\/p>\n
For example:<\/b> Residents of Worcester County, Maryland, pay a county tax rate of $0.112 per $100 of assessed value. In addition, they pay their town\u2019s tax rate, which ranges from $0.4559 to $1.1311 per $100 of assessed value. The effective tax rate equals the county tax rate plus the town tax rate.<\/p>\nMany taxing jurisdictions charge a tax rate per $1,000 of assessed value. The rate in those cases is referred to as a mill. One mill equals 1\/1000 of $1 in assessed value \u2014 or, more practically, $1 per $1,000 of assessed value.<\/div><\/div>\n
Assessed home value<\/h3>\n
Assessed value is the value of your home used to determine property taxes. To ensure all properties are evaluated the same way, your local government will employ a tax assessor to perform a property tax assessment<\/a>.<\/p>\n
When assessing your property, the assessor will look at what nearby homes have sold or assessed for to determine the assessed value.<\/p>\n
The assessed value is not to be confused with either the appraised value or fair market value. While tax assessors and home appraisers<\/a> use similar methods to determine value, their valuations serve different purposes.<\/p>\n
Here\u2019s how the three differ:<\/p>\n
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- Assessed value: <\/b>The value of the property determined by the tax assessor for tax purposes.<\/li>\n
- Appraised value:<\/b> The value of the property determined by a third-party appraiser used for buying or selling purposes.<\/li>\n
- Market value:<\/b> The estimated price at which your property would sell for in the open market based on several factors, including the overall condition of the home, the location, and the current market conditions.<\/li>\n<\/ul>\n
The assessed value is a portion of the market value, so the assessed value is typically lower than both the appraised value and market value.<\/p>\n
Properties are reassessed periodically, depending on your location. In the previous example of Worcester County, Maryland, properties are reassessed once every three years.<\/p>\n
Learn More: <\/i><\/b>When to Get a Refinance Home Appraisal and When to Skip<\/i><\/b><\/a>
\n<\/a><\/p>\nHow to pay property taxes<\/h2>\n
Homeowners generally receive a single tax bill from the county that\u2019s based on their effective tax rate. You\u2019ll pay for your property taxes in one of two ways:<\/p>\n
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- Directly to your local tax office<\/li>\n
- As part of your monthly mortgage payment<\/li>\n<\/ol>\n
When paying your local tax authority directly, you can typically pay in person, over the phone, by mail, or online (via e-check, credit card, or debit card).<\/p>\n
If you dedicate a portion of your mortgage payment to property taxes, your lender will place the money in an escrow account<\/a> until the tax is due. The lender then pays the property tax on your behalf when the bill is due.<\/p>\n
Good to know: <\/b>Tax amounts can change over time. A reassessment, for example, can result in a different valuation, or a taxing jurisdiction might increase taxes to generate more revenue. In either case, your tax bill will change accordingly.<\/div><\/div>\nWhat happens when you don\u2019t pay<\/h3>\n
Penalties for nonpayment can be severe. The first consequence is likely to be a tax lien<\/a>, which is a claim against the property. The lien is a red mark on the title of the property and could make things difficult for you if you decide to sell later on.<\/p>\n
Eventually, the taxing jurisdiction can recoup its loss by selling the lien at auction, in a tax sale. The person who buys the lien can then foreclose on the property, in which case you would lose the home.
\n<\/a><\/p>\nHow to save on property taxes<\/h2>\n
Property taxes can put a serious dent in your budget, but you might be able to reduce your bill or deduct your property tax on your tax return.<\/p>\n
1. Find property tax exemptions you qualify for<\/h3>\n
Your state or county might offer relief programs or exemptions to make your property tax more affordable. One exemption you might encounter is a homestead exemption. This exemption protects some of the value of your home from creditors and reduces the amount of property taxes you have to pay.<\/p>\n
Tax credits<\/a> and rebates can also reduce your tax by an amount based on your income or let you claim a special tax deduction in the event your local property tax increases more than a certain amount.<\/p>\n
Tip:<\/b> Another option might be to defer your tax in exchange for having a lien placed on the property. The lien would be repaid when the home sells.<\/div><\/div>\nLearn More: The Tax Benefits of Owning a Home: Must-Know Deductions and Credits<\/a><\/strong><\/em><\/p>\n
2. Appeal your property tax assessment<\/h3>\n
If you think the tax assessor made an error in your assessment or you believe your property value has decreased since your assessment, you can appeal it.<\/p>\n
The exact process depends on your taxing jurisdiction, but your appeal will likely result in a hearing where you can present evidence to prove your case. Note that you might be charged a filing fee.<\/p>\n
3. Deduct property taxes on your tax return<\/h3>\n
Homeowners who itemize tax deductions<\/a> can deduct state and local property taxes on their tax return. To qualify, the tax must be charged annually even if it\u2019s collected more or less often than that.<\/p>\n
The IRS limits your total state and local tax deduction, including income, sales, and property tax, to $10,000 ($5,000 for individual filers). You\u2019ll claim the deduction by filling out the Taxes You Paid section of Schedule A (Form 1040)<\/a>.<\/p>\n
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<\/p>\n","protected":false},"excerpt":{"rendered":"
- Appraised value:<\/b> The value of the property determined by a third-party appraiser used for buying or selling purposes.<\/li>\n
- Assessed value: <\/b>The value of the property determined by the tax assessor for tax purposes.<\/li>\n
- What do property taxes pay for?<\/a><\/li>\n