No one likes to pay property tax but knowing how these taxes work might make the situation more bearable.
When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works.
Property tax is a fact of life for U.S. homeowners.
But there's more. Understanding how property taxes work and why you pay them might make this less-than-desirable part of homeownership a little easier. So, here's what else you need to know.
Property tax is a recurring fee you pay to your local government (usually county, city or school district).
Be a smarter, better informed investor.
Save up to 74%
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Some local governments collect property taxes once per year, but others might collect the fee more often. Real estate property taxes are paid on non-moving properties, like your primary residence or a vacation home. Those differ from personal property taxes, which tax other types of property like vehicles.
To calculate your property taxes, an assessor will perform a tax assessment to determine what your property is worth. That number can differ from the appraised value of your home, which represents a property’s market value (resale value) rather than its taxable value.
To find the tax-assessed value, tax assessors might consider several factors including:
Some states have a property tax cap that limits how much assessed values can increase each year. However, these caps don't apply to any improvements you make to your property, such as adding a pool, for example.
Note: If you feel your taxes are too high, you may have grounds to appeal your property tax bill. However, appealing your new assessment does not guarantee that the assessment will change.
Property taxes are levied to collect revenue that the state can use for other things. Local governments often use the revenue from property taxes to fund important initiatives in your community. Valuable resources, including your local fire and police department and libraries, also benefit from property taxes.
Funds from collected property taxes might also be used to improve roads and other infrastructure and for public schools. If no one paid property taxes, key state services and infrastructure might not receive the funding they need to serve the community.
Estimated property taxes are often rolled into your monthly mortgage payments, so you might not need to worry about making separate property tax payments while you are paying off your home.
However, because these property tax payments are estimated amounts, there are no guarantees that your mortgage will cover your full property tax bill. So, you might find yourself paying a little more when taxes are due, but that also means you could receive a property tax refund if you overpay.
If you don’t pay your property taxes on time, you might encounter additional fees that local governments will add to your bill. It is important to pay your taxes as soon as possible, to avoid these extra fees and having a lien placed on your property.
Tax liens prevent you from selling your home until you have paid your back taxes. A tax lien can eventually result in a foreclosure, meaning you could lose your home due to unpaid taxes.
Tip: Paying a large property tax bill at the end of the year can feel painful, but saving a little each month (like you would for rent or a mortgage) can help it feel much more manageable. If you are worried about paying your property taxes, you can check for programs in your area that can reduce the amount you owe.
Some people can write off property taxes paid on their federal income tax return, which can lower taxable income (and potentially their income tax bill). However, to deduct property taxes, you have to itemize deductions, so it’s not the best option for everyone.
What about the homestead exemption? You may also have heard of the homestead exemption, which can help minimize property taxes. If granted, a homestead exemption can help protect your primary residence from foreclosure in some cases involving bankruptcy or the death of a spouse.
Many states reserve homestead exemption eligibility for Veterans, people living with disabilities, older adults over age 65, and first responders. However the rules for the homestead exemption vary by state.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
By submitting your information you agree to the Terms & Conditions and Privacy Policy and are aged 16 or over.
