Real estate taxes can be confusing for homeowners and real estate investors. Here's a breakdown of the key things you need to know about real estate taxes:
What Are Property Taxes?
Property taxes, also known as real estate taxes, are taxes charged by local governments and municipalities on land and buildings within their jurisdiction. The amount of tax owed is based on the assessed value of the property.
Property taxes help pay for public services and infrastructure like schools, police, firefighters, parks, roads, and more. They are one of the main revenue sources for local governments.
How Are Property Taxes Calculated?
The assessed value of a property is determined by the local tax assessor's office. They will evaluate the property's market value based on size, location, improvements, and other factors. Many jurisdictions reassess property values periodically, such as every 1-3 years.
Once the assessed value is determined, the tax rate is applied by the local government to calculate the tax owed. The tax rate is expressed as a percentage of the property's assessed value. Tax rates vary greatly by location.
Property tax = Assessed value x Tax rate
For example, a home assessed at $250,000 with a 1.25% tax rate would owe:
$250,000 x 0.0125 = $3,125 in annual property tax
When Are Property Taxes Due?
Property tax bills are typically sent out annually by local tax collectors. Payment due dates vary but are often split into two installments, such as January and July.
Failure to pay property taxes could result in penalties and interest. In serious delinquency, the property may be seized and sold at a tax sale to recover unpaid taxes.
How to Lower Your Property Tax Bill
There are a few potential ways to reduce your property tax burden:
- Challenge your home’s assessed value if you believe it is higher than market value and get it reassessed.
- Look into exemptions you may qualify for, like homestead exemptions for owner-occupied homes.
- Advocate for lower property tax rates in your municipality by voting and contacting local representatives.
- Make property improvements that increase the value, as you can only be taxed on the assessed value.
Understanding how property taxes are calculated, when they are due, and how to minimize the amount owed can help you make better financial decisions as a homeowner or real estate investor. Consult a tax professional if you need assistance.
