In many parts of the country, property tax bills are second in size only to mortgage payments. If you recently have had an increase in your property taxes, a high tax assessment by the tax assessor or you just think your property taxes are a bit high, you may be able to lower it.
The first step is to review your tax assessment carefully and look for errors. Many municipalities hire appraisal companies to assess the value of properties under their jurisdiction, and those companies have been known to make mistakes.
Make sure that the lot number and square footage match your records, and that the assessment shows the right square footage, number of bedrooms and other details. If any of the details are wrong, contact the assessment office immediately.
Many municipalities rely on drive-by assessments to determine the value of your home. Those quick assessments can miss defects that lower the actual value of your home, and that could needlessly inflate your annual property tax bill. If your home has significant problems like a wet basement or cracked walls, you may be able to file an appeal with the assessment office and get your property tax bill lowered.
It also pays to check the property tax records for similar properties in your neighborhood. If you find that your own assessment is out of whack, it makes sense to file an appeal with the agency. The appraisal company could have made a mistake that raised the assessed value of your home and your property tax bill.
You may be able to lower your property tax bill further by checking for deductions provided by your state or municipality. Many states offer significant discounts, or even complete property tax forgiveness, for homeowners in certain categories. If you are a senior citizen, an individual with low income or a veteran, you may qualify for one of those tax saving programs.
If you do qualify, you may need to provide documentation for your income, along with copies of your property tax bills. Some locations require homeowners to pay their property tax bills up front and then provide a rebate equal to a set percentage of the tax or a specific dollar amount.
Other municipalities allow eligible homeowners to exempt themselves from property taxes altogether. The best way to get the savings you have coming is to read the fine print carefully and make sure you are taking advantage of all the discounts for which you are eligible.
Real Estate and the Tax Man
Nowhere does the government’s presence make itself known as bluntly as in the real estate market. It’s a given that real estate transfers, like any other income-producer, invoke federal income tax.
Granted, there’s an abatement that comes with one’s primary residence. As long as the money from the sale is reinvested in another primary residence (you sell your home to buy a different one) there is an exclusion that applies to capital gains on the sale up to $250,000 for a single person and $500,000 for a married couple.
That exclusion is cumulative, meaning you can sell and rebuy indefinitely and not pay taxes until the total of your gain rises above those dollar amounts. In the end, your estate will pay on the final sale of your home. No further exclusions apply.
But even more pointed is the issue of property tax, which in some areas of the country is levied in several different ways by different jurisdictions.
The typical property tax is the purview of the municipality within which the property is located. Some states will not tax unimproved land, which means it is possible to buy a building lot or acreage and not pay a tax on the land until a house it built, making it a much more lucrative investment. But some jurisdictions tax virtually everything, including empty land. Before you buy, make sure you are fully aware of the tax situation in the area in which the lot is located.
Property tax on residences and commercial buildings is comprised of several levels of taxation, from school tax to local government tax to county taxes. All are paid in a lump quarterly sum, not as separate bills. If a mortgage company or bank is holding paper on the house, they may add a monthly escrow amount which is held in an account from which your property taxes are paid for you. But often homeowners find it less cumbersome (and cheaper) to pay the taxes themselves directly to the municipality. Money held in escrow by the lender is not earning interest for the homeowner.
It is critical to consider property tax as part of the cost of the home you are considering buying. A $300,000 property in a low-tax area may have monthly payments that are more easily in reach than the same priced property in a high-tax area. Taxes in the US range from less than $500 per year on average to well over $10,000 per year in the hardest-hit state, New Jersey. So when you are calculating your monthly mortgage payments, make sure you add the monthly amount you will have to set aside for taxes. It may add considerably and even push the property beyond your reach.
Unpaid mortgage payments will cause the homeowner tremendous grief and may, eventually, lead to foreclosure, but that is a long process which can be mediated effectively. Unpaid property taxes may result in a sheriff’s sale of the property within just a few weeks of the underpayment. That is a much more difficult situation to remediate. The wary buyer is his own best defense against the loss of his home and his credit standing.
How to Appeal Your Property Tax Bill and Win
No matter where you live, your property tax bill can take a big bite out of your annual income. In many parts of the country, property tax bills can easily stretch into the high four digits, and even into five digits. With that much money on the line, property owners have a vested interest in keeping their assessments as low as possible.
If you have been hit with a big increase in assessed value, or if you have a nagging feeling that your current assessment is too high, you do not have to take it lying down. Here are some practical steps you can take to challenge your assessment and lower your property tax bill.
Understand the rules. If you want to appeal your property tax assessment, you will only have a limited amount of time to do so. Check your assessment carefully to find that deadline, and make sure you get your appeal in well in advance of the deadline.
Take advantage of all your tax breaks. Knowing the rules also means understanding the tax breaks to which you are entitled. Many states allow homeowners to shield a portion of their primary residence’s value from taxation, so make sure those exemptions have been applied before you start the appeal process.
Check your property record. Your property record is a kind of report card for your home, detailing things like the number of bedrooms and bathrooms, along with any improvements you may have made along the way. An error on this report card could cause your assessment, and your tax bill, to be higher than it should be, so always check it for accuracy. If your county property records are online, you can find your property record online. If not, it will be waiting for you at the assessor’s office.
Look at comparable sales and properties on the market. Drive up and down your street and look for homes for sale. Check out the asking prices of those homes and compare them to the assessed value of your own property. If there is a big discrepancy, you will have additional ammunition when it comes time to appeal your property tax bill. Complete your strategy with a high quality appraisal and you’ll have a solid case.
Gather your evidence. The more evidence you have, the greater the likelihood your property tax assessment appeal will be successful. From blueprints that show the room sizes and floor plan layout to documentation on improvements, the more evidence you have to present, the better off you will be.
Get the neighbors involved. There is strength in numbers, and you are not the only one with a vested interest in lowering your assessment and your property tax bill. Chances are your neighbors also think their assessments are too high, so enlist them in your cause. Talk to your next door neighbor at the backyard barbecue, talk to other parents at your kid’s school and look for other creative ways to build an army of appealers.
7 Confusing Property Tax Deduction Misconceptions
Filing your tax return as a homeowner can be difficult and confusing. When you add the revisions introduced by the recent Tax Cuts and Jobs Act on top, it’s hardly a surprise that many are at a loss for how to proceed. With all the changes in the tax code, it isn’t unusual for taxpayers to believe in a number of myths about how tax deductions work now. If you’d like to be prepared, here are the top 6 tax myths and misconceptions that even well-informed homeowners are often misled by.
1. Mortgage interest is no longer allowed as a deduction
If you purchased your home prior to December 15, 2017, you still get to take advantage of the mortgage interest deduction. You are grandfathered in under the old rules, and can deduct interest that you have paid on loans as large as $1 million. If you bought your home after the date, you still get to deduct mortgage interest; it’s only that the amount that you can deduct is capped at $750,000.
2. The idea that you don’t get to claim property tax deductions
Up until a few years ago, you could deduct all your property taxes to the city and state. You can still deduct property taxes; it’s just that there’s an upper limit. You can’t deduct more than $10,000 a year.
There’s one more revision to pay attention to – the standard deduction is now $12,000 for people who are single, and double that amount for people who are married, and file jointly. Right now, you don’t need to itemize your deductions unless they exceed the new high cap that is in place.
3. Working from home a little entitles you to a home office deduction
It’s a common misconception that your home is a home office if you do even a little work there. In reality, you can only claim that you have a home office if you have an area set aside exclusively for use for work purposes, and it is the primary area where you work for a living. If you have a spare room that you dedicate to your work, then, you may be able to claim a deduction. If you occasionally work in your bedroom, however, it isn’t a valid deduction.
The new tax code is strict in the way it interprets home office deductions. It used to be that you could deduct home office expenses that your employer didn’t reimburse if you only worked from home on occasion. Now, however, if you get a W-2, you aren’t eligible for home office deductions. You can only claim them if you’re self-employed.
4. You can deduct the cost of all home renovations
Unless your home is also rented out to others, home improvement expenses are generally not deductible. A few exceptions do exist, however.
If you need to make changes to your home for medical purposes – putting in ramps, stairlifts, wider doorways and so on – you can deduct them as long as the costs go over 7.5 percent of your adjusted gross income, and they don’t raise the value of your property. You need a doctor’s certificate to prove that the home improvements that you’ve made are medically necessary.
You can also deduct home improvement expenses if you get work done on your home to be able to sell it. As long as the improvements are made in the three months prior to selling, you can classify home improvement expenses as selling costs, and claim.
5. Home equity interest is always deductible
Homeowners often turn to home equity loans for funds to make home improvements, or to send a child to college. The interest that homeowners pay on these loans used to be tax-deductible. Now, however, you can only deduct the interest that you pay on a loan if you use the loan to pay for a large home improvement project. Your deductible mortgage and home equity debt must be less than a maximum of $750,000, as well.
6. Moving expenses are always deductible
Up until recently, you could deduct a part of your moving expenses if you needed to move because a new job required you to commute at least 50 miles farther away than your old job. Unless you are an active member of the Armed Forces, however, moving expenses are not considered deductibles at all, anymore.
7. The Spouse of a Deceased Veteran Can Claim a Property Tax Exemption
Many states have federally sponsored programs that allow disabled veterans to pay no property tax. This program is in effect for the veterans for the duration of their lives as long as they own a home.
The surviving spouse of the veteran also can be made a claimant on their exemption, meaning that they also do not need to pay property tax after the veteran’s death. However, there are a few criteria that a surviving spouse must meet if they want to become a claimant on their claim.
For a surviving spouse to be a claimant on a deceased veteran’s claim to pay no property tax, the veteran must have been eligible during his lifetime. The exception to this rule occurs when the veteran dies while performing military service. In this instance, the spouse of the deceased veteran is eligible to be made a claimant on his claim, despite the fact that he never claimed the exemption during his life.
The surviving spouse of a disabled veteran can be made a claimant on his property tax exemption immediately following his death. She can remain a claimant for the course of her life as long as she remains unmarried. If the surviving spouse remarries, she loses her property tax exemption. If her second spouse passes away or if she divorces from her second spouse, she once again becomes eligible for the property tax exemption.
When a veteran contracts a disease during his service, he receives a disability rating. His disability rating must be 100 percent for him to take advantage of the exemption during his lifetime. However, if he receives a disability rating of less than 100 percent, but he dies as a result of the illness at a later point, the veteran’s surviving spouse still becomes eligible to be made a claimant on his property tax exemption.
The surviving spouse must show some documentation to prove that her husband died of a service-related disease or injury if she is attempting to be made a claimant, although her husband never made a claim on the exemption during his life. The county assessor should not require more proof from the spouse other than the documentation the spouse receives from the United States Department of Veterans’ Affairs.
The tax rules change from time to time. It’s important to make sure that you stay up-to-date with what deductions are allowed. Just because a deduction was allowed at one time, doesn’t mean that you get to take it for granted.
For homeowners who have paid off their mortgages, the annual property tax bill is often the biggest single expense. While eliminating property taxes altogether is the purview of the politicians, these are steps homeowners can take to challenge their too-high assessments and get their property tax bills under control.