Property taxes are duties paid by property owners to the government in which the latter uses to fund services in a community. These services include public education, emergency services, the police department, and even road maintenance. Taxes are the lifeblood of the government, so if no one pays them, the government would be disabled.
According to a 2018 report by the Urban Institute, property taxes account for $547 billion worth of revenue for state and local governments.
The second-largest expense, after mortgage, of any homeowner is property taxes. The cost of property taxes differs from state to state, but according to the latest data, the average property tax on a single-family home was $3,719.
While taxes are the lifeblood of the government, it would be unfair to charge rates that would cause injustice to its constituents. For example, charging extremely high property taxes can make homes unaffordable for retirees living on fixed incomes, those who just lost their jobs, or anyone who’s been hit by an economic downturn.
How property taxes are calculated
Property tax rates depend on where your property is situated. Usually, property taxes are calculated as a percentage of either the fair market value or the assessed value of your property.
The assessed value of a property is determined solely for tax purposes. Your property may have an X amount of market value, but its assessed value, determined by an assessor, may or may not be the same figure. The fair market value is essentially the selling price of the property based on what sellers and buyers agree to for similar properties in your area.
Are Property Taxes Absolute
There’s a saying that death and taxes are two other things in this world that are constant. Therefore, the short answer is that yes, property taxes are absolute. There’s no running away from them but the good news is that there are exemptions.
There are ways to reduce the amount of property tax required to pay. Some states grant exemptions for homestead use, while others do not. Some states also grant certain exemptions based on disability, veterans, or the elderly. It’s best to consult with a local real estate practitioner to help you out with this issue.
You may also use the amount you paid for property taxes and deduct it from your income taxes. Taxpayers take advantage of this because they can get more money back than they would if they took a standard deduction. They use a Schedule A form to show how much money they spent on each line item. These items include medical expenses, gifts to charity, and state and local taxes (SALT). The SALT deduction is currently capped at $10,000.
How to pay property taxes
Most homeowners set aside a sum of money for property taxes every month through their mortgage payments. Your lender or servicer puts the tax money into an escrow account until it’s time to pay.
If you aren’t sure if property taxes are part of your mortgage payments, we suggest you check with your loan officer and ask for a document regarding this arrangement. If you already have an escrow set up for your property taxes, you should be receiving a Form 1098 from your lender each year.
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