Eight Tips on How to Lower Your Property Taxes
The property tax is the oldest tax levied in the United States and is the only major tax common to all fifty states. It is the main source of municipal and county revenues and primary source of support for local schools. Property taxes vary widely by state and local jurisdiction. The National Association of Home Builders calculates the effective property tax rate as measured by taxes paid per $1,000 of home value by dividing aggregate real estate taxes paid by the aggregate value of owner-occupied housing units within a state. New Jersey has the dubious distinction of imposing the highest effective property tax rate—2.13% or $21.25 per $1,000 of home value. Hawaii levies the lowest effective rate in the nation—0.28%, or $2.84 per $1,000 of value.
As home values rise across the nation, so are effective tax rates. In many jurisdictions, the value is assessed annually. In some jurisdictions, however, it’s done every other year, only when the property is transferred or on another schedule. In some areas, the assessed value is the market value; in other areas, the market value is multiplied by an assessment rate to determine the assessed value. No matter how property taxes are calculated, rising values will eventually result in higher tax bills.
The main factor in determining property taxes, however, is not how much a property is worth but how much money the local government needs to raise. Each year municipalities first determine their revenue needs and then create a multiplier to raise it. The multiplier is calculated by taking the amount of money needed and dividing it by the total assessed value of the real estate in the jurisdiction.
That’s one reason many homeowners feel helpless when it comes to pushing back on their property taxes. The property tax is almost entirely out of your control. If you own property, you owe the tax, and the calculation leaves little room for error. You can contest your property valuation, and that can reduce your tax somewhat, but for many people, an appeal is not worth their time or effort.
Here are eight tips on how to reduce your property taxes.
When you receive your property tax assessment, many homeowners are surprised at how high their property is value. The notice will include information on how to file an appeal, yet only about 5 percent of homeowners take advantage of this opportunity, despite the apparent inflation in their assessments. Be sure to review the assessment carefully to see if there are any errors that might inflate the value, such as too many baths and bedrooms. Many people choose not to appeal. A successful appeal requires a significant effort. First, you must understand how the assessment was determined; not all jurisdictions use fair market value. To establish the value of your home, you will need the sales prices of three to five recent sales of homes of the same size and age that are located near yours. Another reason is that you may risk having your assessment increased if an inspection reveals improvements have been made. Finally, the time and effort you put into an appeal may not be worth the savings of a few hundred dollars should your appeal succeed.
In many states, property owners’ primary residences qualify for a homestead exemption. These exemptions reduce the assessed value of their homes. In California, for example, qualified homeowners receive a $7,000 exemption from the home. Second homes are not eligible for the exemption. The exemption is automatically renewed each year until the homeowner terminates the exemption but some jurisdictions require you to re-apply each year.
Exemptions for Age or Income Level
Some states offer exemptions based on other criteria such as age, such as 65 or older, or income level. Usually these will exempt a certain amount of the home’s assessed value from taxation. Each locality has its rules and deadlines for applying. Washington state reduces property taxes for homeowners the year after they’re 61. New Hampshire increases the size of the low-income senior homestead exemption as you age. Some elderly exemptions only defer property taxes until the home is sold.
Some states offer exemptions for disabled homeowners. To qualify for a property tax exemption based on your disability, you’ll be required to show proof, such as eligibility for Social Security disability benefits.
Service to your country abroad may grant you property tax relief at home. Exemptions are available for veterans who served during wartime and were honorably discharged. Some states offer property tax exemptions to all veterans. Others, like Pennsylvania, target disabled vets.
Some states and local jurisdictions offer tax breaks for fixing up an older home, a historic home or improvements in a certain neighborhood in need of development. Be sure to check with your tax assessor’s office before tearing anything down; applications may need to be approved before work begins.
Installing renewable energy systems in your house could pay off on your property tax bill as well as your energy bill. Some states exclude the value of certain green improvements from a home’s real estate assessment. Eligible upgrades may include the installation of solar panels or geothermal heat pumps. Look for information on state and local property tax breaks for renewable energy systems on the Database of State Incentives for Renewables & Efficiency.
Check out the website or visit your local tax assessor’s office to find if any less common property tax exemption categories, such as first responders, teachers, etc.
Finally, don’t forget to deduct your property tax payments from your federal and state income taxes if you itemize deductions.
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