You have heard of them, you probably pay them, but you might not fully understand them. What are property taxes? Property taxes are nothing new in life, and that is a fact. Property taxes are used by government officials as a way to better infrastructure, schools, and other community services and projects. Property taxes can vary greatly by location. However, it is usually based on the value of the property. Because every homeowner must pay property taxes, it is vital to understand precisely what they are and how they are calculated. Summit Way Realty is here to help!
Understanding Property taxes
Property taxes are either paid through an entity or an individual on owned property. Property taxes are known as an “ad-valorem” tax, which simply means they are based on the assessed value of tangible property such as cars, homes, and boats.
In the United States, these taxes are generally levied through local and state municipalities and used in the funding of schools, programs, and other services. Property taxes vary wildly between municipalities and states.
Understanding How To Calculate Property Taxes
If you would like to understand how to estimate the value of your property taxes, there is a simple formula you can follow:
Property Tax = Assessed Value x Tax Rate
Considering there are a number of factors associated with the formula, the general answer is only going to be an estimate. With this in mind, it will never be an exact amount you will pay, but it helps to give you a general idea and understanding of where you are at in terms of payment.
The property value found in the equation will be the property’s assessed value. The assessed value can be found by searching for comparative values in the area or having a home assessor value it. The tax rate will vary depending upon where you live and decided by the town, city, or county. However, it is important to remember that the assessed value will not always match the appraised value. Many states have passed laws that limit the assessed value to a specific percentage of the appraised value.
An Example
Let’s look at an example of a home based in Chicago, Illinois. The home has an assessed value of $280,000 with an average tax rate of 2.1%. You are concerned about how much you will be paying in property taxes.
With this in mind, you would use the formula from above, Property Tax = ($280,000) x (2.1%).
Considering the formula and following calculations, one could expect to pay $5,800 for taxes on an annual basis.
If you are curious to find the average property tax yourself, it is possible to find the average tax rate for a county or city online. In addition, there are a number of online property tax calculators available online that will find and calculate the number for you.
What Are Property Taxes Used For?
You may not realize how much taxes on properties do for communities. In fact, these taxes have an effect on the school systems, police departments, fire departments, libraries, roads, even the community swimming pool, and parks.
These types of services are often what attract potential home buyers to a specific area over another. Good school systems and safe neighborhoods are often key elements that will bring families into a particular community or city. In order to have these types of services and allow the area to grow, it is essential that all homeowners pay specific amounts in property taxes to allow for it.
If you are considering relocating to a new neighborhood and want to enjoy what the community offers, be sure to look at the property taxes and ensure they will be within your budget. This will likely mean that you will have to pick and choose what is most important to you and the family’s needs.
How Property Taxes Work
State and local government officials will calculate the amount of taxes on your property. Taxes are determined based on the property’s value and the city’s tax rate. Let’s take a closer look at these two factors.
The property value will likely contain the value of the physical home and the land and other property such as vehicles. The value will be determined by an assessor working with the local taxing authority and tracking all property values. Because the value of a home is monitored, it is easy for the tax rate to increase or decrease over time.
The local taxing authority decides the home’s tax rate and is based upon the type of property and location.
How Tax Assessors Work
As discussed above, a tax assessor estimates the market value for all property within the jurisdiction. Therefore, when an assessor begins to present tax assessments, they will consider the value of not only the home but land. A tax assessor may also work with the taxing authority to track the local property values.
Roles Of Local Officials
Additionally, several local officials are in charge of creating the property tax rate in the municipality. When officials decide upon property tax rates, they will consider the state, county, and type of property.
How To Pay Your Property Taxes
After you have the answer to what are property taxes, it is time to pay them. In many cases, paying your property taxes is relatively easy because, often, property taxes are included in the monthly mortgage payment. This is because many mortgage service providers will collect the tax payment in installments as part of your mortgage payment and place it into an escrow account. When taxes become due, the payment is then made from that account.
Additionally, homeowners can choose to make payments on an annual or semi-annual basis directly to the tax authority. However, some mortgage lenders will place restrictions on this option in an effort to reduce the chances of a home being lost due to tax foreclosure.
Property Taxes FAQ
If you still have questions regarding property taxes and what is generally required, continue reading to find your answers.
Are Real Estate Taxes and Property Taxes The Same?
In basic terms, both of these taxes are the same thing. The term ‘real estate tax’ simply refers to any tax on an owned property. These two terms can be interchanged unless you begin to discuss personal property tax. Personal property tax includes items that are movable, such as boats, cars, and planes.
How To Dispute Over An Assessment?
If you believe that your property was incorrectly assessed, an appeal process is available. This particular process is going to vary depending upon applicable laws. If you are a homeowner that believes you need to appeal your assessment, it is best to begin by contacting the assessor’s office. You will want to learn how the assessment was prepared and begin your own research. It is best to begin by looking at other properties comparable to your own and find out if the value is similar.
Finding Tax Rate on My Property
The property tax rate will vary from one jurisdiction to the other. Summit Way Realty recommends contacting the local taxing authority directly. In some instances, you may need to search your tax rate area number through your address and find the tax rate for the designated area. To find the county tax collector, begin by searching for your zip code with the Nationwide Environmental Title Research.
Understanding Tax Exemptions
There are some situations where a homeowner can qualify for a property tax exemption. The most common exemptions are for homesteaders, seniors, and veterans in many cases. These types of property tax exemptions will likely reduce taxes but not entirely eliminate them.
Can These Taxes Be Deducted From Federal Taxes?
Traditionally, state and local taxes were fully deducted from federal income taxes. However, in 2017, changes were made, and these deductions were capped at $10,000, generally affecting individuals living in higher-taxed states.
What Happens If I Do Not Pay My Taxes?
If you do not pay your taxes for one reason or another, the municipality may place a tax lien on your property. With this in mind, it is essential to keep up with your property taxes.
When a tax lien is placed on a home, creditors are given notice that the government now has a right to your home. If you still do not pay the lien will become a levy, which means the government can seize the property. In this case, the property taxes will be paid from the sale of the property.
You may face other consequences if you fail to pay taxes on a property. For example, the taxing authority may choose to transfer your account to a private collection firm. Private collectors generally use much more aggressive tactics to gain payment; therefore, always try to avoid this situation.
Final Thoughts On What Are Property Taxes
What are property taxes, is a common and vital question that every homeowner should understand. We hope the above information helps you better understand property taxes. There are many moving parts to buying a home, and understanding property taxes is essential. For more information on the real estate industry or help with purchasing or selling your home, give our experts at Summit Way Realty a call today!
