Property taxes help local governments stay in business. Taxes on land and buildings -- also called ad valorem taxes -- raise money for counties, cities, special tax districts and school systems around the country. The property tax assessor calculates the taxable value of your property which, multiplied by the current tax rate, gives you your payment for the year.
Some states make annual property assessments, while others schedule them every two or three years or more. Assessors usually evaluate home prices by researching recent sales of houses like yours. The sale prices tell the appraiser what your house is worth on the market. The income approach for rental or business properties measures how much revenue the property generates a year. With industrial and special-purpose properties, assessors look at what it would cost to rebuild them.
The assessed value of your house is never higher than its actual worth, but in many parts of the country, it's lower. Instead of levying tax on what your house is worth, your county may set the assessed value or taxable value at a percentage of the market value. If your house is worth $180,000 but the assessment level is 27 percent, for example, your property tax is based on an assessed value of $48,600.
If a rising real estate market raises property values, that translates into bigger tax bills. Some states have laws in place to protect residents from those increases. When you buy a home in Florida, for instance, the assessed value equals the market value. Every year after that, as long as you live in and own the house, the assessed value can only go up 3 percent a year, no matter how the market value rises. That protects you from steep tax increases in a boom market.
If the property values in your town drop between assessments, you may get a tax bill based on a value much higher than the current value of your house. Even if the values don't change, assessors sometimes make errors. Every county has a procedure in place for challenging incorrect assessments, though the burden of proof is on you to show that the assessor screwed up. Showing that someone with an identical house pays less money is not proof, because of the many exemptions and caps some state residents qualify for.
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