Real Estate Tax Penalties
Property tax on real estate is usually levied by local government, either at the municipal or county level. Real estate taxes are often the primary source of funds for constructing and maintaining schools, parks, libraries, sewers and roadways, as well as providing public services such as firefighting, police protection and garbage disposal. Real estate taxes are an important source of revenue for local government and penalties will be imposed if the taxes are not paid on time.
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Payment of Real Estate Taxes
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The method of payment and due date for real estate taxes depends on the jurisdiction where the property is located. Although all jurisdictions levy real estate taxes annually, some jurisdictions require that these taxes be paid in one or two installments, while other jurisdictions permit three or more installments. A few jurisdictions even permit monthly payments. Many homeowners pay their real estate taxes through escrow accounts by having the tax bill combined with their mortgage payment.
Late Payment Penalties
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Real estate taxes that are not paid by the due date will incur a penalty. The penalty is typically a one-time charge---such as 10 percent---but can be imposed as a graduated penalty that starts small, about 2 percent, and continues to increase over time to upwards of 15 percent. These penalties are rarely abated or waived. Unpaid real estate taxes and penalties will become a lien against the property.
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Enforcement of Tax Liens
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It is possible to lose your home if your real estate taxes remain unpaid. The taxing authority can enforce its lien against the property by selling it. Some jurisdictions require a court proceeding prior to sale. Other jurisdictions may permit tax sales without court action so long as the appropriate statutory notices and procedural requirements are satisfied. Typically, tax liens take priority over all other liens against the property.
Right of Redemption
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Most jurisdictions provide certain rights to the delinquent taxpayer to save his home from a tax sale. Prior to the sale date, the taxpayer will have an "equitable right of redemption" that can be exercised to prevent the sale. In order to exercise this right, the taxpayer would have to pay the delinquent tax plus penalties, interest and other charges. Even after the sale---in some jurisdictions as long as two years after the sale---the taxpayer can still redeem the property, referred to as a "statutory right of redemption." To exercise this right, the delinquent taxpayer will have to pay the amount paid at the tax sale, plus interest and related charges.
IRS Real Estate Related Tax "Penalties"
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Although the IRS does not impose taxes on real estate in the manner that local governments do, real estate transactions can result in adverse tax consequences if the taxpayer fails to comply with the applicable IRS rules. The IRS website provides tips on how to comply with its rules related to real estate so as to avoid such consequences.
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References
- Photo Credit Image by Flickr.com, courtesy of woodley wonderworks
