Whether you are a brand-new homeowner, or you are thinking about buying your very first home, property taxes can be a little intimidating. Learning more about property tax and what affects the amount you will pay can help you make better decisions for your financial future.
What is Property Tax?
If you have never owned a home before, you are probably still very familiar with income tax, which is based on the amount of money you earn, and even sales tax, which is based on the amount of money you spend. Property tax is a little different as it is based on the value of your property. Your city or county government assesses property taxes to help generate the money required to operate, including money that pays for public schools, local libraries, police and fire departments, and even local roads.
How Are Property Tax Amounts Determined?
Property tax amounts are determined using a number of different criteria. “Real” property tax is based on the actual value of your home. In a perfect world, homeowners who own property with the same value as yours pay the same amount of property tax, and homeowners who have property that is more valuable pay more property tax than those who own less valuable property. Of course, there are other factors to consider. Property tax is more often based on a home’s market value (or a percentage) which is determined by things like features, the value of other properties in the neighborhood, and other market factors.
Property Tax Exemptions
Certain people may be able to claim property tax exemptions that relieve them of some or all of the liability for property tax payments. For example, elderly individuals, military veterans, or disabled persons may be able to claim at least some exemptions that will reduce their liability. There are also property tax exemptions you can receive in exchange for renovations, but these are only in some areas, and they only last for a certain period of time. Finally, you may be able to get at least some discounts for installing energy-efficient appliances and systems in your home.
Are Taxes Evaluated Annually?
Property tax reassessment does occur from time to time, but there is no set timeframe for every single jurisdiction. In almost all jurisdictions, the total amount the local government needs to collect in taxes is determined, and then individual properties are assessed in such a way that the taxes equal that amount. When neighborhoods remain unchanged for long periods of time, they may go several years without being reassessed. Conversely, if businesses come to certain neighborhoods, or if many homes within the same neighborhood are renovated, reassessment could occur more often.
Property taxes affect almost every homeowner in the United States, and first-time buyers often feel apprehensive about this additional bill of sorts. Fortunately, the benefits of home ownership and the money saved by making mortgage payments rather than simply paying rent covers these payments and then some. You can easily find out the average property tax for any home on the market by talking to your real estate agent.