You don’t need to be a buyer or seller in today’s crazy real estate market to be affected by it. The jump in home prices — 16 percent nationwide over the past year, and even higher in certain areas — threatens increases in property taxes for entire neighborhoods. So not only does a new homebuyer face potentially higher monthly costs than the listing suggested, but it also could mean a new financial strain for established homeowners.
Additional pressure to raise property taxes comes from the stores closed and offices vacated in the pandemic. “Residential values are rising, commercial values are falling, so your share of the total local budget could increase,” says Daphne A. Kenyon, resident fellow in tax policy at the Lincoln Institute of Land Policy.
“Property taxes are one of the biggest concerns people have as they near retirement age,” says Michelle McBride, past president of the National Association of County Collectors, Treasurers & Finance Officers. “It’s a smart thing to pay attention to.” Whether you’re house hunting or staying put, keep these points in mind.
Location is everything
Property taxes are relatively simple: An assessor employed by the local government determines the value of your home, then you pay a percentage of that value in taxes. But the impact of these taxes is far from uniform. Tax rates vary widely from state to state, and even from town to town.
Consider, for example, a house currently priced at $350,000 in the Cleveland, Ohio, suburb of Beachwood. It had a 2019 property tax bill of $5,300. In the adjacent town of Shaker Heights, a similar house had a bill of $10,200 — almost double that of the home just over a mile away. But travel to Montgomery, Alabama, and an even larger home selling for $400,000 had an annual property tax bill of only $1,300.
Generally speaking, property tax rates tend to be higher in urban areas, in regions with fewer commercial establishments to tax, in communities with well-funded public schools and in states with lower income taxes. In virtually all areas, condominium apartments are taxed at the same rate as stand-alone houses.
Buyers may pay more than sellers
If a homeowner pays a particular amount in property taxes, the next owner won’t necessarily pay the same. That’s particularly true in a booming market like the current one. In Florida, for example, once you’ve established that a home is your primary residence, your property taxes can’t increase by more than 3 percent a year, no matter how much the home’s value may have grown. Once you sell your home, though, that cap is erased and the home’s assessed value could end up being far higher, based in part on the sale price.
“This is where the surprise comes in,” Kenyon says. To avoid property-tax shock when contemplating a purchase, crunch the numbers for your potential new hometown or state, she advises, and investigate the local property tax system to learn about any breaks you might be eligible to apply for. Many local governments will provide information and tools, such as a property tax calculator, on their websites, or you can call the local assessor’s office for information. If there is no info locally, reach out to the state department of revenue. “You have to do a little detective work,” Kenyon notes.
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Discounts come with age
Nearly every state offers some property tax relief to older homeowners, usually once you reach 65 and sometimes only if you are a lower-income resident. Breaks can take many forms: a credit, a refund or deferral of taxes, a freeze on rate increases, or even a reduction or increase cap for your home’s assessed value.
Alabama, for example, gives a full exemption from state property taxes to residents over 65, though they still might get a county tax bill. Stay alert for special provisions: In Massachusetts, you can apply for back credits if you forgot to file for them in a previous year. Counties in Colorado allow people age 60-plus to work off part of their property tax bill by volunteering for a county agency.
You can appeal
Home values are regularly reassessed for tax purposes, perhaps every other year. The results aren’t always fair, however. A recent study, for example, found that assessments across the U.S. on average undervalued expensive homes and overvalued the least expensive homes, effectively placing a greater burden on lower-income homeowners.
If you believe your home has been improperly valued, you can appeal the ruling. “I’ve seen appeals work many times for people of all ages,” McBride says. Appeals procedures vary by location — they might be in person, online or a combination of both — but a good place to start is with the website of the tax assessor for the county or municipality where you live.
First, ensure the property data the assessor used to value your home is correct, including square footage, number of bedrooms and bathrooms, and year built. “Our values are only as good as our data,” says Greg McHenry, president of the International Association of Assessing Officers. Then request the comparables (aka comp) sheet from your town to evaluate what similar properties they used to calculate your property’s value.
Town officials may be more helpful than you might think, McBride says. “Local government is very citizen-centered, usually.” You can also look at recent sales of comparable homes in your neighborhood on Zillow or by asking a real estate agent. But beware that an appeal can also end up raising your assessment. “Before you go in and start complaining, McBride cautions, “it’s important to look at the information.” Instead of doing the appeal yourself, you could hire a licensed appraiser who will charge a fee or work for a portion of the savings. A local real estate agent might know someone who is familiar with your area.
You have resources
If you’re having trouble paying rising property taxes, you have some options. First, contact your local government; its property tax website may have contacts and information about steps you can take. Many states provide tax breaks based on factors such as income, military service and disability, with financial help taking the form of reduced property tax bills, tax credits or cash refunds. Try tapping AARP Foundation resources or contact a local housing counselor approved by the federal Department of Housing and Urban Development.
Financial wellness experts or counselors can help assess your finances and demonstrate how to adjust your budget to better afford property taxes and other ongoing expenses, explains Alexandra Cisneros, who works at the nonprofit GreenPath Financial Wellness in the Milwaukee area.
Sharon Waters, a former CPA, has written for Wired.com and other publications.
-Additional reporting by Gabriel Baumgaertner.