Property Taxes 101
Property taxes impact homeowners, renters, and businesses and are an important part of local government financing. Property taxes are typically levied by counties and local municipalities to fund public services like schools, emergency services (think ambulance and fire departments), infrastructure maintenance (roads, lighting, and more!), among many other things that contribute to the function and efficiency of a community.
Although property taxes affect homeowners and renters quite significantly, the taxes and their calculation, application, and collection can be complex to understand.
What Are Property Taxes?
Property taxes are taxes that property owners pay based on the value of their property. This includes land, structures, and sometimes other elements like personal property (e.g., vehicles). The tax is typically assessed annually by the local government.
These taxes are most commonly the primary funding source to pay for services and infrastructure, such as public schools, law enforcement, fire departments, and transportation. Without property taxes, these essential services would need to be funded by other means, like state or federal funding, or potentially through higher sales or income taxes.
How Are Property Taxes Calculated?
The process of calculating property taxes starts with the assessed value of the property. Once the property’s value is determined, a local tax rate (also known as a mill rate) is applied.
However, many counties and states offer exemptions or deductions for certain types of properties or owners. For example, seniors, veterans, or first-time homeowners might be eligible for tax breaks, and in some cases, property used for specific purposes (like livestock and agriculture) are eligible for lower property tax rates.
Why Do Property Taxes Vary?
Property tax rates vary because each local government sets its own tax rates based on their budget needs and priorities. Larger cities or counties with more expensive real estate, for example, are known to have higher property tax rates. Rural areas and smaller communities may have lower demands for certain county-wide or city-wide services, so the rates in those areas may be lower. Additionally, places where there are no state taxes may rely more heavily on property taxes and sales taxes to fund services at the state, city, or county level.
Also, as property values increase, local governments may raise property tax rates or increase funding for services available to those areas.
What Happens If You Don’t Pay Property Taxes?
Not paying property taxes is a common way people lose their homes. If property taxes go unpaid for an extended period, the local government may place a lien on the property, which means the government claims legal rights to the property until the taxes are paid. If the unpaid balance is held for years, the property could be sold at a public auction.
How Can Property Taxes Impact Homeowners?
For homeowners, property taxes are often one of the largest ongoing expenses. They can be a financial burden, especially in areas with high property values and high tax rates. Many homeowners opt to pay their taxes through an escrow account, where a portion of their mortgage payment is set aside specifically to cover taxes. This method ensures the homeowner doesn't have to come up with a lump sum each year but can still keep up with payments.
Property Taxes affect both homeowners and renters, and being informed about how the rates measure up in your area and how that may affect the price and overall cost of a home is important. Even though the calculation and application can be complicated, an experienced attorney can help you factor in all the aspects of homeownership as you embark on your real estate journey!