Property Tax 101: What Homeowners Need to Know

Property tax is a fact of life for U.S. homeowners, and the tax burden has risen for some homeowners — a few may even wish to abolish it.

As it stands, you must pay property taxes for as long as you own your home. The amount you pay in property tax will depend on where you live and the assessed value of your property, and the bill you pay might change over time.

Property taxes have skyrocketed over the past few years in some states, like Florida, due to rising popularity. In some cases, it’s made housing accessibility harder for would-be homebuyers. Now, more and more states have begun to offer property tax relief to some individuals.

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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.

What is property tax?

Property tax is a recurring fee you pay to your local government (usually county, city or school district).

Some local governments collect property taxes once per year, but others might collect the fee more often. Some key differences will determine how your property is taxed:

• Real estate property taxes are paid on non-moving properties, like your primary residence or a vacation home.
• Those differ from tangible personal property (TPP), which taxes other types of property like vehicles, machinery, or business equipment.

According to the latest data from the Tax Foundation, as many as 14 states offer some tax exemptions on tangible personal property as of 2024. Additionally, TPP taxes are taxpayer active. In other words, the taxpayer is responsible for determining their tax liability and paying their respective taxes. These may be subject to audit.

How are property taxes calculated?

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:

• The condition of the property
• Characteristics of the property (size, number of bedrooms, etc.)
• The market conditions in your area (These can fluctuate and cause your property tax liability to change.)

Some states have a property tax cap limiting how much assessed values can increase yearly. 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.

Some folks experiencing hardship may be eligible for a property tax freeze program. These programs are usually available for older adults or those with disabilities; however, some states offer the credit to any homeowner if they meet specific requirements.

For example, in New York, the property tax freeze credit was a two-year tax relief program that reimbursed qualifying New York homeowners for increases in local property taxes on their primary residence. The program lasted until 2016.

Why are property taxes levied?

Property taxes are levied to collect revenue that the state and local governments can use to fund important initiatives in your community. Valuable resources, including your local fire and police departments and libraries, also benefit from property taxes.

Funds from collected property taxes are often used to improve roads, infrastructure, and public schools. If no one paid property taxes, key state services and infrastructure might not receive the funding they need to serve the community.

For example, some state officials want to abolish property taxes in Florida. The proposal has raised questions and concerns on how the state can fund community improvements and public schools.

Are property taxes included in mortgage payments? 

Estimated property taxes are often rolled into your monthly mortgage payments, so some homeowners won’t need to worry about making separate property tax payments while paying off their homes.

However, because these property tax payments are estimated amounts, there are no guarantees that your mortgage will cover your entire 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.

When you don’t pay property taxes 

If you don’t pay your property taxes on time, you might encounter additional fees that local governments will add to your bill. It’s 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.

Property tax exemptions and deductions 

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.

Additionally, if there aren’t any property tax credits or exemptions you are eligible for, there are still some ways you can reduce your property tax bill. Simply limiting your home improvements can lead to tax savings over time. Some folks may consider moving to a different area with lower tax rates, depending on their circumstances.

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