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Property taxes are typically the largest homeownership expense after paying off your mortgage. Any way to save on property taxes can be a big win for your budget!
Home ownership can be a real joy. The thought of holding your own keys in your hands and being able to point to them and say, “This is my house.”
Until it's time to pay property taxes. The average property tax in California is $4,694 per year, while in places like New Jersey and Connecticut it ranges from $6,400 to $9,300 per year. That is undoubtedly the case not one of the joys of home ownership.
Now, of course, we all want to be great citizens and do our due diligence to help with infrastructure and projects that benefit our communities. However, there is no reason to pay too much property tax.
There are ways to reduce your property tax bill legally – let’s dive into it.
How property taxes work
Simply put, property taxes are local taxes paid on property you own, including the land and buildings on the property. The amount of property tax you owe is typically based on the assessed value of the property (i.e., the value of the property).
Some states, particularly California, charge your property tax on the sales price for which you purchased the property. For example, if you buy a home for $500,000, your property taxes will be about 1.2% of the value, or $6,000 per year. In California, your property value will not be reassessed unless you make significant changes to your property. This way, some fantastic beachfront properties pay very little in taxes.
However, in other states, your property's value may be reassessed every year or every two years. Texas law requires every property to be reassessed AT LEAST every three years. The result is that the amount you pay in property taxes may change depending on the new assessed value.
When you want to dispute your property tax bill, it almost always involves disputing the value of your property. Here you find out how this works.
Contact your local/county tax office
A simple Google search for “local or district tax office” and the name of your city will give you a list of the relevant offices in your area.
Once you've gathered this information, call or visit one of these offices and ask them what options you have to reduce your property taxes, especially if you think you might be paying too much.
This is truly a situation where they say, “If you never ask, you’ll never know.” Once you've identified all the options available to you, you can implement the ones that will save you the most money.
Note: Local authorities are notoriously underfunded and understaffed, meaning emails may be lost if you choose to send them. If you call or make an appointment, you're more likely to get productive results.
Find out the current value of your property
For most people, the value of their home is the primary factor in their property taxes. Aside from a few small flat taxes, most property taxes are a percentage of the home's value – say 1%.
It's important to note what the county or city thinks your property is worth and what you think your property is worth. Obtain a copy of your home's current assessment report from the County Assessor's Office. This may give you more reasons to save on taxes.
Additionally, it is extremely useful to know how your local government values properties in your area. For example, in some states property taxes are based on a limited percentage of your home's purchase price, while others are known to increase or decrease your tax bill based on fluctuating market prices.
Finding out exactly how this number is calculated can help you determine whether or not you're paying the right rate.
Another way to find out the true value of your property is to have a recent appraisal done. Maybe you recently refinanced your home and have a current appraisal from your bank. This can be an excellent tool for determining the current value of your property.
Appeal your property taxes or property assessment
It is likely that this is one of the options that the local/county tax office will offer you.
The sad truth is that the County Assessor's Office, the people who assess and assign value to homes and properties, is sometimes woefully understaffed and yet is responsible for the entire county.
Such employment also means that the likelihood of errors being made during the initial valuation of the property is very high. It's also possible that a neighbor of yours who owns a much larger/more expensive property than you may actually pay lower taxes than you as a result. You can appeal your current tax bill here.
Each local tax office will handle tax complaints differently. In general it works like this.
- Submit an official appeal form to your local tax office
- Contact the County Assessor's Office and go over your home's value together to make sure your home has been valued correctly and there are no errors
- An appraiser may be sent to your home to revalue your property, taking into account similar properties in your area. You can exercise your power here by visiting the property with the appraiser to ensure everything is done correctly.
- If further evidence is needed, you may be required to attend a hearing to defend your case
- If it happens that your home has been misassessed and you are paying higher taxes as a result, this information will be forwarded to the County Assessor's Office and from there steps can be taken to reduce your property tax bills. If you are due a refund due to an overpayment, you will also receive this from your local tax office.
Research similar properties and what your neighbors are paying
You don't have to ask your neighbors what they pay in property taxes. Information about property taxes for your house and similar properties can be found at the district tax office.
Make sure you compare based on parameters like:
- Size
- Number of bedrooms
- Number of bathrooms
- Garage/No garage
- The year the house was built
- Area surrounding the house
- Premium views (e.g. ocean, lake, mountains, etc.)
If your research shows that you are paying significantly more than properties in your area with similar features, you can use this knowledge to further increase your appeal.
You can also use real estate websites like Zillow and Redfin to find out what homes similar to yours have sold for in the last 30-90 days and what taxes they pay to get a good idea of what you should pay.
Find out if you are eligible for tax relief
States and local governments offer different property tax relief if you are a senior citizen, veteran, active military member, disabled or in severe financial need. You may have to submit the necessary documentation to prove that you fall into one of these categories, but it's worth it.
In many locations there is also an exemption for homeowners or farms. This means that if you live in the property as your primary residence, you will receive a small tax break. However, you will usually be required to submit a specific form. Make sure you fill out this form if you haven't already.
Other states and local governments also give you a tax break if you use alternative energy sources for your home, such as solar energy.
There are services that can help
Some states and localities have services that can help you reduce your property taxes. They basically do all of the above steps for you – but for a fee. Sometimes the fee is a flat fee, regardless of whether it saves you money or not. In other cases, if the company manages to reduce your property taxes, you pay the company a percentage of the savings.
One service that uses technology to help is Ownwell. This company will let you know in advance if they believe they can save you money and only charge a percentage if they are successful. They also operate in multiple states. Check out our Ownwell review here.
Some important points to keep in mind
These are all the steps you can take to lower your property tax bill and pay the taxes you need to pay and nothing more. Personally, I was able to use an appraisal from refinancing my home to reduce my property tax bill. I simply appealed to my district, sent them my new opinion and they agreed. For about 30 minutes of work I was able to save a few hundred dollars.
However, if you don't have anything current, it may make sense to use a service.
As you take these steps, it is important to remember that you will still have to pay your taxes for the current year while you research and appeal your case.
It is also important to note that if you decide to appeal, it may take one to two years for the property tax bill to reach the correct amount.
We believe the fight is definitely worth it because it will save you 10, 20, or even 30 years of overtaxing when you could have put the money into investments.
Have you ever successfully reduced your property taxes?
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