The purchase price of a house is only one factor in determining the property taxes its owner must pay. What comparable houses have recently sold for is also important, and affects how the house is assessed -- or valued -- for tax purposes. Moreover, every government sets its own tax rates, which can go up or down independently of trends in home prices. This means that a buyer can get a real estate bargain -- but still end up with an outsize property-tax bill.
Property taxes may be levied by states, counties, cities, towns and certain other public entities. Most of these government bodies also have the power to impose income taxes, sales taxes, and a variety of fees and charges. However, in most of the country, property taxes have long provided the primary source of revenue for local governments and schools. Communities depend on these funds to deliver basic public health and safety services, like police protection and trash collection.
An assessment is the government's measure of the taxable value of a home. It may or may not differ from the property's market price. Tax assessors take into account not only what a house was bought for, but also how that price compares to recent sales prices of comparable houses in the area. The assessment may also reflect remodeling, expansion or other improvements to a home that could make it more valuable in the future.
The calculation of a homeowner's property-tax bill is based on two numbers: the assessment and the community's tax rate. Each public body sets a rate per $1,000 of assessed value -- called a millage rate -- that will produce the amount of revenue needed to fund its operations. While each homeowner's assessment is unique, the tax rate will be the same for everyone who lives in a particular jurisdiction. However, millage rates can differ significantly among neighboring communities.
Sometimes assessors make mistakes. For example, an assessment may be too high because the official failed to notice structural deterioration or overestimated the size of an addition. There can also be problems when assessments lag major swings in the real estate market. For example, an assessment completed a year before a collapse in housing prices could overvalue many homes in the affected area.
A Homeowner can contest a property-tax bill that he believes is too high or unfair compared to his neighbor's bill. If the homeowner has evidence of an assessment error -- like incorrect room dimensions -- he can file an appeal. The homeowner can also question the timeliness of a community-wide assessment. Taxpayers also have the option of challenging their local tax rate. Every public body has the power to lower its rate in response to citizen concerns.
- "A Guide to Property Taxes: Property Tax Relief"; National Conference of State Legislatures; 2002
- Photo Credit Jupiterimages/Comstock/Getty Images
How to Acquire Property Based on Past Due Real Estate Taxes
When a homeowner fails to pay property tax, the county where the property is located has the right to foreclose on the...