How to Reduce Your Property Tax

Property tax rates have risen nationwide, creating challenges for many homeowners, including retirees. Data show that last year’s property tax bills increased by as much as 30% in some places. 

Unfortunately, if you own a home, you cannot avoid property taxes altogether without risking penalties. However, some strategies and programs, like the ones described below, can lower your property tax bills and ease your financial burden.

Property tax exemptions

Exemptions are a common method for lowering property taxes. To ensure compliance and maximum benefits, research specific requirements and application procedures in your state. You can contact your local revenue department. 

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Here are some common property tax exemptions.

Homestead exemption: The homestead exemption reduces the assessed value of a primary residence and results in lower property taxes. Many states offer a homestead exemption, but eligibility criteria vary.

“Senior citizen” exemption: Many states offer exemptions, usually for those 65 or older, to help alleviate the financial burden on retirees living on fixed incomes. These exemptions typically have age and income requirements.

Disability exemption: Individuals with disabilities may be eligible for exemptions. These can vary in scope and eligibility criteria but often provide relief based on the degree of disability and income.

Veterans exemption: U.S. military Veterans may be eligible for exemptions that reduce or exempt bills. In some cases, spouses and dependents of deceased Veterans may also qualify for these benefits.

Property tax relief programs

Property tax relief programs may offer qualifying individuals property tax credits, deferrals, or rebates to manage their property tax obligations. Nonprofit organization AARP estimates that more than 9 million people in the U.S. are eligible for some form of property tax relief.

But beware of property tax relief scams and unsolicited offers. Scammers may ask for personal information and use high-pressure tactics, promising to reduce or eliminate your property taxes for a fee.

AARP offers a free resource, Property Tax-Aide, to help older adult homeowners find legitimate relief programs. 

Freeze programs

Property tax freeze programs can offer relief for older adults or those with disabilities facing financial hardship. The programs prevent increases in property tax bills.

• Also, while not a freeze program, some states have property tax caps limiting the amount property taxes can increase in a specified period. 
• However, as Kiplinger has reported, terms and conditions and cap types vary.

Note: New Jersey offers a "senior freeze program" mailing millions of dollars in property tax reimbursements to eligible older adult residents. For more information, see Kiplinger's report: $145 Million in Senior Freeze Checks Mailed.

Property tax appeal

Consider appealing your property’s assessed value. Assessments can sometimes be inaccurate or outdated, resulting in higher-than-necessary tax burdens. 

• By gathering evidence on recent comparable sales or property conditions, you can make a case for a lower assessed value and, possibly, a lower tax bill. 
• Check local rules, including deadlines, for appealing your bill.

Relocating (To places with low property tax rates)

Moving to a different area with lower tax rates or more favorable tax policies can be enticing. 

• Some states offer tax incentives to attract new residents. 
• According to the Tax Foundation, some states with relatively low effective property tax rates this year include Alabama, Colorado, Hawaii, Louisiana, and Wyoming.

Still, it is important to note that lower tax rates do not necessarily translate to lower tax bills. And of course, when deciding to move, living expenses, amenities, family obligations and quality of life are key considerations.

Home improvements (Limiting them)

Homeowners might reduce taxes by avoiding extensive home improvements. Property taxes are based on assessed values, which can increase with major renovations or additions. 

• Some areas offer tax incentives for properties that remain within certain improvement thresholds. 
• Homeowners might avoid over-improving their homes which can lead to property tax savings over time.

Note: It's good to remember that in the eyes of the IRS, qualifying home improvements (capital improvements, not routine maintenance or ordinary repairs) can increase the cost basis of your home. That adjusted basis can lower your capital gain, potentially bringing it within the capital gains tax exclusion threshold. So, if you plan to sell your primary home and capital gains taxes are a concern, consider any pros and cons of various home improvements.

Lowering your property taxes: Bottom line

As a homeowner, you should proactively manage property tax obligations as rates continue to rise. Explore available exemptions and programs, (and don't forget about tax deductions and credits for homeowners) but consider property taxes as part of your overall financial and retirement wellness picture. 

Consult qualified a tax planner, appraiser, or financial advisor for guidance if needed.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

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