Property Tax Frequently Asked Questions
Frequently Asked Questions
- What is a property tax?
- Who has to pay property taxes?
- Do renters pay property taxes?
- Can I deduct my property taxes?
- Who gets property tax breaks, and how?
- How can I protest or appeal my property taxes?
- What's a property tax lien?
- What happens if I have delinquent property taxes?
- What is a property tax loan?
- Why do property taxes vary so much between different counties and states?
- Are there any states with no property tax?
- Why do my property taxes keep going up?
What is a property tax?
In it's most common form, property tax is a special tax collected on real estate such as land and buildings. In the United States, property taxes are dependant on the fair market value of the property, and are collected annually. Property taxes have been historically used as a source of revenue for local governments such as counties and cities, and the Federal and state governments do not directly collect property taxes on real estate.
Because property taxes are often collected by local governments, the method used for calculating property taxes can vary greatly from one area to another. Similarly, the amount of property tax owed by the owners of similar properties can differ by thousands of dollars in different states or counties. As a result, understanding property taxes and knowing how the average tax rates differ in different areas can save you hundreds of thousands of dollars when deciding where to buy your next home or land!
Who has to pay property taxes?
Property taxes must be paid by the legal owner of non-exempt personal or commercial real estate. If you own a piece of property, you will receive an annual property tax statement from your tax assessor. Once you have received the property tax statement, it is your legal responsibility to pay your property taxes before the due date.
In addition to real estate, the owners of certain property like cars and boats may also be subject to different types of property tax. These property taxes are often collected as title or registration fees, and vary by state.
Do renters pay property taxes?
Property taxes are the legal responsibility of the property's owner, not of the renter or tenant. However, in some rental situations, your landlord may pass on the property tax burden to you. For example, many condominiums and co-ops collect property taxes from tenants as a line item in the monthly maintenance fee.
If you pay some or all of the property's taxes as a condition of your rent, you may qualify for some of the property tax deductions described in the next FAQ. Additionally, renters in some states like New Jersey and Maryland may be able to claim special renter's credits on their state income tax returns to compensate for the percentage of their rents that go toward paying property taxes.
Can I deduct my property taxes?
In most cases, any and all property taxes paid on real estate can be fully deducted on your federal income tax return as a deductible tax payment. Depending on your state's income tax laws , property taxes may also be deductible on your state income tax. For a taxpayer in the highest federal tax bracket, this could mean saving 35% or more on your property taxes!
Keep in mind that municipal fees disguised as property taxes, like sewer levies, are not deductible. You must also itemize your deductions in order to deduct property taxes. Learn more about property tax deductions and other tax benefits of being a property owner here.
Who gets property tax breaks, and how?
Almost all states have programs to help certain demographics get property tax breaks. One of the most common tax break programs, the homestead exemption, provides lower tax valuations for your primary residence. If your property is registered as your home address, chances are you are already qualified for and receiving the homestead exemption from your property tax assessor.
Other states and counties offer special programs to reduce property taxes for other special interest groups. Some of the most common programs include reduced property taxes for seniors and veterans. Unlike the homestead exemption, you will often have to contact your tax assessor directly to see if any of these programs exist and how you can qualify for them.
Finally, many states offer property tax incentives for certain uses of the taxed property - often known as Current Use Programs. For example, if you hold large pieces of property, you can often secure property tax reductions by specifying the land as protected green space and limiting future development. Many states also have special programs to control property taxes on land used for agriculture, land used for eco-friendly timbering, commercial land in certain underdeveloped areas, or land used for other uses which the state hopes to incentivise.
Many of these property tax reductions require re-appraisals, ontracts, or other paperwork. Depending on your situation, you may want to retain a local property tax lawyer in order to most efficiently qualify.
How can I protest or appeal my property taxes?
One of your rights as a taxpayer is to appeal your tax assessment if you believe the tax assessor is valuing your property at more then it is actually worth. While the process varies county to county, to get your assessment changed you must submit a property tax appeal to your local tax assessor before the filing deadline which presents the actual valuation you believe your property is worth, and evidence to back up your claim.
Evidence of your property's overassessment is the most important part of your appeal. Evidence can include recent appraisals of your property by a qualified third party appraiser, recent sale prices, new additions or deterioration to the property, changes in the neighborhood that could affect property value, or changes in the fair market value of nearby properties similar to yours.
If your appeal is accepted by your tax assessor, the tax valuation of your property will be changed. If the new valuation is lower then your old property appraisal, your taxes will be lowered accordingly. Your appraiser can either accept your appeal in full, deny your appeal, or propose a compromise. Be prepared to provide plenty of evidence to support your case, and consider retaining a property tax lawyer to assist you if you have trouble going through the appeal process yourself.
What's a property tax lien?
A tax lien is a financial obligation that is attached to your property that requires the owner to remit any owed taxes to the taxing authority or risk the property being foreclosed upon. Property tax liens are generated whenever the property tax appraiser issues you your tax bill, and will generally disappear once you pay the bill in full.
If your property tax goes unpaid, however, the lien will remain attached to the property's deed until it is paid - either by you or whoever buys your property at a sheriff's auction in the event of foreclosure. This is why, when buying a house, you often must pay a title company to do a title search on your new property. The purpose of the title search is to ensure that there are no old liens attached to the property that you could become liable for when you become the owner.
What happens if I have delinquent property taxes?
If you leave your property tax bill upaid, your property becomes delinquent and a property tax lien is attached to your property's title. After a certain number of monthes of delinquency, and after several opportunities to pay your accrued tax and penalties, your county will begin the process of foreclosure. The tax foreclosure process can last six monthes or more, and may remain on your credit report indefinitely.
After the foreclosure notice has been issued, you may be evicted from the property in preparations for a tax sale. Often, the county sheriff or clerk will release a foreclosure list to interested investors, who will bid on the properties at the local courthouse. Ownership of the delinquent properties will be transferred to the winning bidder once they have paid any outstanding property taxes and penalties and settled any remaining liens.
What is a property tax loan?
A property tax loan is a high-interest loan offered by some financial companies to individuals who cannot currently pay their property tax obligations. The companies will often offer to pay your property taxes for you to help you avoid penalties and tax foreclosure, offering you a repayment plan and collecting interest.
However, many of these companies will require the property to be offered as loan collatoral. This means that if you cannot pay off the high-interest property tax loan, the loan company itself will take your house. Loan companies may use legal techniques such as priority liens to expedite the foreclosure process, which can often leave homeowners in an even worse situation then they were before the loan.
Instead of resorting to a property tax lender, try approaching your property tax assessor and requesting a tax payment plan as a possible alternative to foreclosure.
Why do property taxes vary so much between different counties and states?
A quick look at out property tax map of the United States reveals that property taxes in one state or county can change by as much as 1500% or more from a different locality just down the road. The real reasons behind this significant variance can be broken down into two major factors:
States tend to have higher or lower property taxes as a whole due to decisions made at the state level which pertain to where and how local governments get money. New Jersey, for example, has the highest median property tax in the country for several reasons:
- New Jersey has relatively low income taxes compared to other states
- Unlike other states, New Jersey law requires houses to be taxed at 100% of appraised value
- None of the New Jersey sales tax goes to counties or towns
California, on the other hand, has lower property taxes (relative to property value) then many other states because of Proposition 13, which limited property taxes to 1% of the cash value of the property. As a result, California has higher sales and income taxes (part of which go to local governments) to make up for lost property tax revenue. In Nevada, state and local revenues from gambling help keep property taxes low (and income and sales taxes zero).
Counties and cities tend to have higher property taxes relative to other nearby localities in the same state due to higher overhead or more spending, which translates into the need for more revenue. In states which allow local governments to collect income and sales taxes as well as property taxes, these may also play a part. The higher spending overhead needed by New York City and the surrounding counties, for example, is the reason the southeast corner of New York State has property taxes as much as eight times higher then other areas of the state.
Are there any states with no property tax?
The short answer to this common question is no. While there are several states with no income and sales taxes, property taxes are so important to local governments that there is no state or county, that doesn't collect some form of property tax.
However, like income and sales taxes, there are many counties and states that collect considerably lower taxes then average. The southeastern states tend to have some of the lowest property taxes in the nation, with Louisiana having the lowest median property tax of any state at $243 per year. Compared to New Jersey, where the median property tax is almost 15 times higher at $6,579 per year, Louisiana is as close to free as you can go!
Why do my property taxes keep going up?
Like most other taxes, property taxes are adjusted yearly by local governments based on revenue needs and inflation. Because inflation tends to go up, even property taxes in an area with flat government spending will tend to creep up over time.
Occasionally, property taxes may be lowered automatically due to fluctuations in cost-of-living indexes, or explicitly due to slashing municipal spending or increased revenue from other sources. In general, however, lower property taxes are correlated with higher state income and sales taxes - so lowered property taxes are often offset by other forms of taxation which will also affect your wallet.