Owning a home comes with expenses other than a mortgage payment. One of those expenses is property tax, which is typically paid to local governments such as counties and cities or even some school districts. In fact, property taxes make up around 17% of state and local revenue, coming in above sales tax and individual income tax as a way municipalities earn money for programs including schools, libraries and roads. While property tax money does go toward important things, you obviously don’t want to pay more than you have to and might wonder why your property taxes are higher than your neighbor’s.
Find out more about how property taxes are calculated below. Then get some tips for potentially lowering your property taxes.
How Are Property Taxes Calculated?
Property taxes are typically a percentage or portion of the assessed value of a home each year. To figure out how much your property tax is, you’ll need the following:
- The current assessed value of your home. You should receive information from your tax assessor’s office when an assessment is performed. Some municipalities send out an assessment value yearly. If you don’t have an assessment value, contact your city or county tax assessor’s office.
- The percentage or amount of tax charged by your municipality. You can usually find this on the municipality or tax assessor’s website. For example, in Roanoke County, VA, real estate is taxed at $1.09 per $100 of assessed value.That’s a property tax percentage of 1.9%.
Once you have those pieces of information, you can figure out what your property tax might be. Let’s use the Roanoke County example above to understand how the numbers might work.
If you live in Roanoke County and your home has an assessed value of $200,000, the formula for figuring out the property tax would be $200,000 x 0.019. The amount is $3,800.
It’s important to note that property taxes are not calculated based on how much you paid for a home or how much you owe on it. The assessed value can go up or down depending on factors such as the state of the market, changes in the neighborhood or changes you make to your own home.
The tax agency responsible for collecting your property tax will send you a bill with the amount you owe. But knowing how it works helps you ensure your property tax bill is accurate.
Are Property Taxes Based on Square Footage?
In some cases, square footage can impact property taxes. That’s because square footage is generally a factor in how much your property is assessed for. More square footage—especially more livable square footage—could increase your assessment. That, in turn, can increase your tax.
So, how do tax assessors calculate square footage? They get information from the city or county or another reporting agency.
Does Lot Size Affect Property Tax?
Yes, lot size can affect property value—which in turn can affect your property tax. If your lot is substantially bigger than other lots in your area, that could mean your property tax is higher than your neighbor’s—especially if all other factors are equal.
Tips for Reducing Your Property Tax
Your tax bill isn’t set in stone, and you do have some options for disputing it or reducing your property tax in the future. If your property tax is more than your neighbor’s or if you’re just surprised by how much it is, check out some of the tips below to see if you can get it reduced. If these tips sound like good options for you, it might be worth working with a property tax professional to help make your case.
1. Start with Your Tax Assessment
Review your tax assessment to ensure it seems correct. When the value of your property changes, you should receive notice in the mail. If the value suddenly jumps and you see no reason for that to happen, contact the assessment office and ask for details. In some cases, you can get a detailed listing of how the value was arrived at.
Go through that information and find anything that looks wrong or off. Did the assessor assume you upgraded fixtures when you didn’t? Is the square footage correct?
If you can get facts like this corrected on the assessment, your assessed value might go down. That, in turn, lowers how much property tax you have to pay.
2. Get Involved with the Assessment
The sooner you get involved with the process, the easier things might be to correct. If you wait until the assessment is complete and the property tax bill is issued, it can be harder to dispute the amount for that year.
If the assessor walks your property or comes inside your home when valuing your property, make sure you’re present to answer questions. This can help reduce misinformation that could unnecessarily increase the value of the assessment.
In many locations, you don’t have to allow the assessor access to the inside of your home. In some areas, the assessor might not automatically ask for this. Contact your property tax office to find out if an assessor can come inside your home to get the most accurate picture of your property’s value.
3. Hire an Independent Assessor
If you’ve tried to work with the assessor’s office and still feel the value of your home is being inflated, you could hire an independent assessor. An assessment from a private company won’t automatically reduce your property tax, but it can be helpful if you plan to dispute the assessed value of your home.
4. Research the Assessed Value of Similar Homes in Your Area
This is another good step to take if you plan to file a tax appeal. Look for homes in your area with similar lots, square footage and amenities. If, for example, you have a home on a 1-acre lot with three bedrooms, two baths and 1,600 square feet, you’ll want to use homes that are as close to those specs as possible.
Look up the assessed value of those homes in public records or ask your neighbors for a copy of their property value assessment. If all the similar homes in your area are valued at around $200,000 and yours is valued at $275,000, a mistake might have been made that you can get corrected.
5. File a Tax Appeal to Change the Value of Your Home
Research how to file a property tax appeal in your location. First, check the property tax assessment letter to see if there are options or instructions for appealing it. Next, reach out to the assessor’s office and the property tax office for your municipality to find out more about the process. You may need to file forms and present documents, including independent assessments and comps—which are the assessed values of similar homes in your area.
6. Avoid Value-Increasing Improvements to Your Home
If you want to avoid increasing your property value—and thus your property tax—in the future, you could avoid home improvements that increase the value of your home. This is obviously a personal decision, and you’ll need to weigh the value of the improvement to your lifestyle with any potential increase in property tax before making a decision.
Don’t Forget Other Financial Matters
While you’re doing the work to manage your property taxes, it’s a good idea to take some time to review other financial matters. For example, make sure you know how homeownership is impacting your other tax obligations. And keep an eye on your credit score so you know where you stand should you choose to buy a new home or need a short-term loan to cover a surprise property tax bill.
