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Understanding Property Tax

Do you know how much property tax you’ll owe this year?

Property taxes are usually the main source of funds for local entities like cities, counties, and states. Here’s some detail to help you get acquainted:

Where Do the Taxes Go?

How much property tax is owed, how often it is collected, and what it is used for are all up to the state or municipality collecting the tax. Generally, the funds go toward local public schools, infrastructure, and services. If you’re interested in the specifics of this distribution, check with the entity’s treasury. Sometimes the information is easy to find with an online search, but other times you’ll have to dig a little deeper. Either way, this is an important step to take before you consider purchasing any property.

Understanding Your Tax Rate

The property tax rate is often expressed as a “millage.” Each “mill” is one-tenth of one cent for each cent of assessed (taxable) value. For example, if your property’s assessed value is $70,000 and your tax rate is 58 mills, you’ll owe $2,100 ($70,000 x .001 x 30) in property tax.

Assessment vs. Appraisal

Be sure not to confuse assessed value with appraised or sale value. The amount your house last sold for, or what you think it should sell for, is probably different than your assessed value. The period between assessments varies from state to state. In most states, assessments happen every five to seven years. The assessment might not be performed by a licensed appraiser. It might not even involve a look at your house! An assessment is based on public information of groups of comparable property and their market value near the date it is conducted. Typically, assessed value will be a fraction of the market value, depending on local regulations.

Appraisal, on the other hand, is meant to determine the current market value of a property. It takes comparable properties’ recent sale values into consideration but also involves an in-depth analysis of a specific property in person by a licensed appraiser.

Potential Over-assessment

Since an assessment only takes place every few years, it may not reflect the true market value of your home. For example, suppose your house was assessed two years ago when the market value was $150,000. Since then, the real estate market has fallen 12 percent. Now you’re paying taxes for $150,000 worth of property when the true value is only $132,000. Seems a little unfair, right?

Appealing Your Property Tax Assessment

Naturally, governments are very fond of their tax revenue, so it’s not exactly easy to lower your assessment. A strongly worded letter won’t cut it, but there are some concrete steps you can take.

First, get to know your home’s specifications and check for any obvious mistakes on the bill. It’s possible that the assessor has the square footage of your home recorded wrong. Next, check to see if you can access public records for assessments of similar homes near you. If you can show that you’re being billed more than a similar or better home, you have a strong case.

If you can’t find any clear discrepancies, but there are more subjective faults to your property (it’s near a noisy business or has an awful interior layout), you may have a case. Speak with a lawyer or licensed appraiser to determine if your home warrants reassessment, then head to the assessor’s office.

There’s a good chance you’re not paying too much in property taxes, but it’s always worth spending an afternoon to make sure!

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