How to Cut Your Property Tax Bill
It’s too often overlooked in housing decisions
Nobody likes paying property taxes, yet too few people take advantage of strategies to cut their tax bill.
You ought to be thinking about the tax bill when you buy a house and when you expand or remodel one. And if you already own a home with a hefty tax levy, there are often ways to trim it, up to and including a formal appeal
The average U.S. homeowner pays $2,375 a year in property taxes, according to this analysis.
In high-tax states like Connecticut, New Hampshire and New York, the average tops $5,000. In New Jersey, the average clocks in at $8,104, and homeowners owning basic three-bedroom houses in commuter towns near New York City frequently pay $15,000 or $20,000 a year.
It’s not just the Northeast. Texas has no income tax, but its effective real estate tax of 1.81% is one of the highest in the nation. Midwestern states like Wisconsin (1.91%) and Nebraska (1.77%) also have high property tax rates.
You can pay off the mortgage with time, but your property tax bill never goes away. Here’s a primer on keeping it under control:
It’s you versus your neighbors. Local governments calculate your tax bill by multiplying the assessed value of your property by the local tax rate. The math is simple but it can get confusing nonetheless.
Some states and municipalities purposely assess your house at a fraction of its true market. In New York state, for example, municipalities generally can assess at whatever percentage of true market value they choose as long as they are consistent. Other states require that municipalities assess at 100%, but the cities sometimes use dated numbers. In a sense, it doesn’t really matter what system is used as long as the taxing entity treats homeowners consistently. The problem is they often don’t.
The first key to avoiding overpaying taxes is figuring out how your assessment compares to your neighbors. If your house is assessed at 20% beneath its market value but your neighbors’ house is assessed at 40% beneath, you’re effectively subsidizing them. They may be very nice neighbors, but enough is enough.
Here’s a database that allows New Jersey residents to find how their taxes compare to their neighbors. Many states or municipalities have similar databases.
Are there mistakes in your assessment? Take a careful look and make sure the assessor has the correct number of bedrooms and correct square footage, or doesn’t describe a basement as finished when it isn’t. Is the size of the lot correct? Is the age of the house correct? How about the purchase price? Getting these items wrong can result in an inflated assessment and a higher tax bill.
If there are any mistakes, bring that to the attention of the assessor. They expect these calls. And you can often get your assessment changed without making a formal appeal.
Elko County, Nevada, recently raised assessed valuations after it switched to new software. Homeowners were upset. Even though the deadline to formally appeal had passed, the assessor promised residents it would work with them to correct any mistakes.
Get the special breaks you’re entitled to. Many states have homestead exemptions; they reduce taxes for veterans, seniors or lower-income residents. Seniors in Illinois, for example, are entitled to a special homestead exemption in addition to the regular exemption. And those earning no more than $65,000 can get their assessments frozen at the current level.
In California, meanwhile, 1978’s Proposition 13 limits property taxes to 1% of the assessed value, plus any voter-approved taxes. In addition, assessments can rise no more than 2% a year if a property isn’t sold. As a result, longtime residents in areas where property values have shot up can end up with shockingly low taxes compared to a new buyer. That has tended to keep tax-conscious Californians in the same home.
So the state passed additional amendments that allowed homeowners 55 years or older to sell their home, buy another home of lesser or equal value, and retain their property tax basis from their previous home. The rules are complicated, but the consequences are potentially huge, and qualified homeowners should be careful to guard this tax break when they move.
The assessor can be your friend. In small towns or counties, particularly, the assessor can be quite accessible. I live in northern New Jersey with some of the highest property taxes in the country. The good news is that the assessor in my town is easy to get on the phone.
When we were shopping for a new home, we talked to her to make sure the house we wanted to buy was indeed assessed at the price we were paying. The tax bill was bad enough, and we didn’t want the city to decide we needed to pay more because we were under-assessed after we had closed on the house.
When we considered adding a portico above our front door, we talked to the assessor. She told us it wouldn’t increase our assessment as long as we didn’t expand the size of the porch. If you live in a high-tax area, you have to consider the property-tax implication of every change you make to a house.
Come prepared if you decide to appeal. If you’ve done all the steps above, and you’re still paying more than your share in property taxes, consider a formal appeal. Lawyers will do it, but you’ll have to hand a portion of the savings to them. You can do the appeal yourself.
Prepare a succinct information-packed presentation. Politely alert the appeal board to mistakes that the assessor has declined to correct.
If you’re paying more than neighbors in comparable houses, you need to supply the information to prove it. A realtor can pull selling prices on comparable houses for you or you can comb through tax records yourself.
Different states and cities have different appeal processes. Learn the one in your town. An appeal is a hassle, and it’s probably not worth doing if you believe you’re overpaying only a little bit. But if you have a $10,000 tax bill, and you can make a strong case it should be $8,000, that’s $2,000 a year in potential savings. Go for it.