How Not to Overpay Your Property Taxes

Image of people reviewing paperwork on a desk with computers on it. Captioned: Hot Not to Overpay Your Property Taxes.

Homeowners pay taxes on their real estate to fund local services. Renters, too, pay property taxes, as they’re rolled into monthly rent charges. The property taxes we all pay go to sustain libraries and schools, emergency services, environmental projects, sewer work and road maintenance.

How much is one property’s share? To determine this amount, an assessor multiplies the local tax rate by a property’s value. Many assessors’ offices use discounted values of properties when coming up with their tax assessments, not the full market price; still, property taxes often amount to thousands of dollars each year. With local governments determining them, rates vary from county to county, and big cities generally collect higher property taxes than suburban developments or country towns do.

Home shoppers need to check the property tax when perusing a listing, and include that tax in the cost of owning a particular home. Plus, they should expect a possibly higher tax after buying the home, as there could be a new assessment when the deed changes hands.

A homeowner’s mortgage account may hold money aside in escrow. Of course, the owner pays into the escrow account — but this way, the owner’s taxes will be continually kept up to date without the owner having to remember to submit a payment each time local taxes are due.

Tax Assessors Spot Home Improvements, New Amenities

Once the new owner moves in and makes changes to the house, major home improvements can augment the property’s value. This, in turn, might trigger a tax increase in the next assessment. Reassessments can occur yearly or every few years. Local tax assessors track permit requests to know when properties should be reassessed. They also scout their areas, sometimes using aerial spotting.

And as local homes sell for higher prices, or new amenities are added to a community, taxes tend to move upward. There are other reassessment triggers, too. Should the state’s funds be cut, local funding might be needed, for example.

The tax office should notify residents of impending changes to owners’ obligations. For example, Philadelphia’s Office of Property Assessment issues Notices of Proposed Valuation to tell homeowners about changes to their assessed home values. 

Property usually go up, not down. Yet ballot measures to cap state property taxes have been known to succeed.

Three Ways to Question Your Property Tax Bill  

To challenge your property tax bill, start by reviewing the current assessment. Your state likely offers guidance in the steps you can take to optimize your position. An example is Pennsylvania’s property tax “Self-Evaluation Guide.” If you study the process and your own home’s assessment, perhaps you’ll feel strongly about challenging your home’s tax bill. If so, it’s important to work on the issue before you get your next bill.

If your property has been overvalued, speak with someone in the assessor’s office. There are three major issues that can change assessments.

1. Your property value went down, and the assessment fails to reflect that.

Can you show the assessor’s office your home’s market value is less than then estimate the office has on record? The condition of the property or its surroundings might have changed. Another way to determine your home’s value is by hiring a licensed, independent appraiser — if your assessment office will consider a report from a privately hired professional.

2. The property description on record with the assessor is incorrect.

If your property description includes a significant error, the mistake is likely reflected in the market estimate made by the assessor. Perhaps the assessor’s record overestimates the size of your lot, or the home itself, or the number of rooms. But if the size of your floor plan seems inflated, it might be because the assessor measures around the home’s exterior — not the wall-to-wall measurements inside.

3. Owners of comparable homes around yours are paying lower taxes.

Your tax assessment could be revisited if it is inconsistent with the tax burdens of multiple homes around it that are comparable in size, construction, style and age. This is an easy problem for the assessor’s office to confirm, and it should require only minimal research on your part to spot the issue in the first place. The Multiple Listing Service allows a quick comparison of homes and their taxes, and data-focused websites such as Zillow and Redfin will show pictures of the inside and outside of these homes. Do you find comparable homes in your immediate surroundings indicating that your home’s assessment is overstated? If so, the office may be willing to reassess your tax burden.

If the assessor takes no action, although appropriate action could significantly decrease your taxes, consider approaching the tax appeals board. First, do some research to weigh your potential tax cut against the time, expense, and effort this will take. Find out exactly how your assessor’s office handles appeals.

Pro tip: Look out for scam artists who promise they can work on your case to lower your assessment. Services with big fees and big promises might be out to mislead and take advantage of frustrated homeowners.

Offsetting Your Taxes Through Official Credits

Even if you’re not eligible for a lower assessment, offsetting some portion of the tax may be possible. Here are the most common ways homeowners reduce their taxes.

Tax rebates and exemptions: A surge in home values leads to a surge in taxes. But you might find a rebate from your escrow account if local tax collectors release a portion back to you. Some homeowners, including veterans and people with disabilities, can apply for exemptions on their property taxes. It’s worth checking if you might qualify for some type of tax discount. For example, Pennsylvania’s property tax and rent rebates, funded by the state lottery, make rebates available to older and disabled residents.  

The homestead exemption: Where available, this exemption lowers the property tax for a home used as a primary residence. Most states offer this. The state may notify homeowners with forms by mail, prompting them to opt in by an annual deadline.

Deferrals: Seniors and lower-income people may be able to put their property tax on hold for life, or until the time they sell the home. Consider Minnesota’s Senior Citizens Property Tax Deferral. People aged 65+ with a total household income of no more than $60,000 are eligible, and this helps hundreds of Minnesotans with high property taxes relative to their incomes.

Pro tip: If you itemize deductions, you may benefit from deducting property taxes on your federal return.

Where Are the Highest and Lowest Property Taxes?

On average, home property taxes run just over $2,300 annually. Across the country, property tax revenue amounts to 1.1% of the average home value.  

So, where are property taxes highest and lowest? Property taxes in northern New Jersey and New York can be especially steep, with some homeowners paying five-figure sums every year. Homes in Illinois, New Hampshire, Connecticut and Wisconsin all face assessments well over the national average.

States where property taxes run comfortably under the average include Hawaii, Alabama, Colorado, and Louisiana. Property taxes in the District of Columbia are also relatively low, and a number of states carve out substantial property tax exemptions for seniors.

Some states have lowered property taxes, but hiked their sales taxes. Moreover, about half the states impose vehicle taxes. In this sense property taxes, like most expenses, need to be understood within the fuller picture, rather than considered a complete barrier to purchasing a home where you’d most like to live.

Somehow, and in more ways than one, we all render what’s due unto Caesar.

Further Reading

Helpful resources on the topic of property tax include TaxFoundation.org, as well as:

John S. Kiernan, WalletHub: Property Taxes by State (Feb. 2020).

Kristin Wong, Architectural Digest: 6 Things That Might Make Your Property Taxes Go Up (Jan. 2018).

Photo credits: Scott Graham, via Unsplash.