Local governments charge property taxes to cover the costs of municipal services and projects including education, law enforcement and fire protection.
Two important figures that taxing authorities use to calculate your property taxes are the local tax rate and your home’s assessed value.
Municipalities include public services spending in setting tax rates. You can typically find your home’s tax rate on the property deed.
A property’s assessed value is a percentage of its market value. This can range anywhere from 10% to 100%, depending on jurisdiction.
One effective yet often overlooked way to lower your homeownership costs is to reduce property tax bills.
While property taxes vary widely from one location to the next, the median annual tax in the three most expensive metro areas in the United States reached $6,181 (San Francisco), $7,051 (San Jose, California), and $8,400 (New York) in 2020.
The cost can significantly boost your homeownership expenses in the long term. But that’s not all: Property taxes also tend to grow as real estate appreciates.
You usually can’t lower your real estate tax to zero. However, you may be able to reduce it by correcting erroneous information on your property tax card, looking up the sales prices of similar homes in the area, refraining from home improvements and other actions.
Property taxes are taxes that homeowners pay on any real estate they own. Local governments levy these taxes to cover the costs of municipal services and projects, such as education, law enforcement, fire protection and public recreation.
While these services directly benefit residents, real estate taxes can be burdensome. They also tend to increase over time. Different states have varying tax rates, but you’re really never exempt from paying real estate taxes if you own your home.
Local governments calculate property taxes using local tax rates and your home’s assessed value.
Each municipality sets its own rates depending on how much it spends on public services. To some degree, your property tax rate also depends on which of these services you use.
Some jurisdictions adjust the rate annually, and others do it over longer periods, such as every five years.
Note that your municipality may use the terms “millage” or “mill rate” when referring to the local tax rate. These come from the Latin word millesimum for “a thousandth part,” because the millage represents how much you pay for every $1,000 of your home’s assessed value.
Various local authorities, each with its own millage, combine their rates to arrive at your total property tax liability. These authorities include:
Emergency services districts
If your county, municipality, school board, community college and emergency services district charge 30, 15, 15, 20, and 15 mills, respectively, your combined tax rate totals 95 mills. This is equivalent to $95 per every $1,000 of your home’s assessed value.
You can usually find your home’s individual millage rate on your property deed.
A property’s assessed value is a percentage of its market value. This can be anywhere between 10% and 100%, depending on your jurisdiction.
Every year (or every few years, depending on the municipality), the local government appoints a professional assessor to evaluate your property – both the building itself and the land on which it sits – and determine its assessed value.
Local authorities then multiply the assessed value by the local tax rate to calculate your total property tax. So, if your home’s assessed value is $100,000, and the tax rate is 2.5%, your annual bill would be $2,500.
Is your latest property tax bill not quite what you hoped it would be? Many people are in the same boat. You may be able to lower it using the following.
Knowing what goes into your real estate tax calculation (and what doesn’t) is key to keeping your bills as low as possible.
To start, you want to read up on how authorities calculate property tax rates, and this article is a great first step.
Next, head over to your local government website and look for information on local rates.
Finally, contact your local assessor’s office (or check online) to request a copy of your property tax card. It contains information the town has collected about your home over the years, which contributes toward your tax calculation. The card may include:
Number and type of fixtures
Any special features
Review your property tax card carefully. If you spot any discrepancies, flag them immediately, and find out from your assessor how you can correct them. Assessors are under obligation to either correct the errors or conduct a reevaluation.
Your assessor has publicly available information not just about your home, but also about other property assessments in the area. You can look up and review the assessments of comparable homes in your neighborhood, as well as general stats about local evaluation values. If you find a discrepancy, it could help reduce your property taxes.
For example, let’s say that your three-bedroom house with a one-car garage has an assessed value of $300,000. If a nearby three-bedroom home with a two-car garage and swimming pool stands at $285,000, the assessor may have made an error.
Most assessors have a standardized process for appealing property taxes, and do so only at certain time intervals. During the appeal timeframe, you can bring any discrepancies your find to the assessor’s attention.
Any improvements, structural changes, or new fixtures to your home will likely increase your tax bill.
This includes anything that could enhance the property’s value, such as:
Remodeling the bathroom, kitchen or other areas; this includes making cosmetic changes such as replacing countertops or installing new appliances
Installing permanent fixtures like decks, pools or sheds
Boosting the property’s energy efficiency with the addition of permanent structures or equipment
Improving your home’s curb appeal
If you’re considering a home improvement project, you may want to check how this might influence your property tax bill before proceeding. For a ballpark estimate, contact your local building and tax departments. Depending on the project, your needs and the impact on property taxes, giving up on a home improvement job may be worth it at times.
Alternatively, you could postpone any alterations until after your next property assessment period.
If an assessor is doing a reassessment, they may ask to inspect your home from the inside. You don’t have to let the tax assessor into your home if you don’t want to. However, if you don’t grant them access, they may be unable to conduct an accurate reassessment.
When assessors can’t inspect your home from the inside, they may assume you’ve made certain improvements as a matter of course and will assign the highest possible value for that type of real estate.
In general, it’s best to allow the assessor into your home. As long as you have the required permits for any improvements you’ve made, you can only benefit from the accuracy an in-person inspection will provide.
If an assessor does come to your home for a reassessment, don’t just let them in and allow them to walk around on their own while you wrap up work emails or do chores in another room.
You’ll have zero control over what the assessor sees and notes down if you do that. Some may only notice good features such as new countertops or a freshly painted deck, overlooking the outdated HVAC system or creaky floors.
Instead, walk through your property with the assessor and point out both the good and the bad. This can help ensure an objective valuation.
In some jurisdictions, you may be eligible for state or municipal property tax exemptions if you fall into one of the following categories:
People with disabilities
Contact your local taxing authority to check whether you qualify for an exemption.
In 2020, property taxes on homes without mortgages were an average of $641 lower. Home values largely determine real estate taxes, and properties without mortgages are sometimes worth less than those with mortgages.
So, if you can pay off your mortgage early, it’s worth considering. However, consider that taxes on real estate without a mortgage can still be high in certain areas.
We mentioned appealing your assessment if you believe it’s incorrect. Each assessor’s office has a standard process for appeals; it generally will be provided on the assessor’s website. You’ll also find details on the process when you receive your assessment in the mail (every one to five years, depending on the area). In some states, books and articles on how to file an effective appeal are available.
You’ll need to file a formal appeal. Some assessor offices may charge a filing fee. Some homeowners choose to hire an attorney, who will likely charge a fee as well – usually a percentage of the savings on your bill if the appeal is successful.
To win the appeal, you must prove that your home’s assessed value is higher than it should be. One way to do this is to show that comparable properties in the vicinity have sold for less. You may also need to provide pictures and other information on the current condition of your home.
The local authorities will review this information, compare it to your tax bill and the latest property evaluation, and come to a decision. In some areas, homeowners can appeal a decision once or even twice. The whole process could take up to a few months.
Finally, note that if the reviewer approves your appeal, they’ll only lower your home’s assessed value – not the tax rate itself. Your local authorities will continue to tax you at the established rate. However, you’ll still benefit from an overall reduction in your property tax bill.
There’s also the (unlikely) possibility of you not only losing the appeal but also ending up with a higher home assessment if the reviewer considers that the earlier evaluation was too low.
Tapping into your home equity won’t lower your property tax bill. However, it can provide you with funds that you can then use to pay your property tax bill, reduce homeownership costs or otherwise improve your financial situation. For example, you could improve your property’s energy efficiency, or consolidate and eliminate existing debt.
Your home equity is the property’s current market value less any debts or liens. The amount of equity will change over time, such as when you make payments toward your mortgage principal, or when the value increases with economic forces impacting the real estate market.
One of the most effective and cost-efficient ways to access your home equity is through a home equity agreement (HEA). This is different from debt-based products like home equity loans or home equity lines of credit (HELOCs).