So unless you’re living under a rock, you probably know that the housing market is booming!
According to CNBC, the rate at which homes are selling hasn’t been seen since 2005.
And according to the Wall Street Journal, housing prices are at all-time highs!
This is obviously great news for homeowners, and not so great for people who are looking to buy a home.
But something that a lot of people is just not thinking about are property taxes.
Property taxes are based on the value of your home, so as home prices surge, so will your property taxes.
So what can you do? How can you save on property taxes?
If you stick around until the end of this post, you’ll find out the most effective ways to minimize your tax bill.
Because today, we’re going to give you the steps on how to pay less in property taxes.
Property taxes are one of those “hidden fees” associated with owning a home. And it can catch you by surprise if you don’t carefully plan for it.
So if you want a couple of proven strategies to pay less in property taxes, then stay until the end of this post.
Let’s jump into it!
How Do Property Taxes Work
Before we start telling you how to pay less in property taxes, let us first explain how these property taxes work, so you can plan accordingly here.
There are 5 moving pieces of property taxes:
- The fair market value of your home.
- The assessed value of your home.
- The exemptions you claim (which you’ll learn is very important you want to lower your property taxes).
- The millage rate (which is your tax rate).
- The levying entities you are paying property taxes to.
So let’s go ahead and break this down.
Example of How These Property Taxes Work
Here is a sample property tax bill.
As you can see here, the fair market value of this property is $360,000.
In other words, the fair market value of your property is how much the property is worth.
And if you’re looking at your tax bill, this is how much the city thinks your property is worth.
That part is important, because if that amount is too high, you may be paying too much in property taxes.
But we’ll tell you how to handle that later so be sure to stick around.
Now, the important thing to know about property taxes is that you do not directly pay taxes on the fair market value of your property.
You pay property taxes on the net assessment value of your property.
The net assessment value of your property is simply the assessed value of your property minus any exemptions.
But hold on, what is this assessment value stuff and how is this different from your fair market value?
The assessed value of your property is the percentage of your home that is subject to property taxes.
You do not technically pay property taxes on the full value of your home – just the assessed value.
For example, in the city of Atlanta, the assessed value is 40% of your home value.
So if your home is worth $360,000, like in this example, then the assessed value of your home would be $144,000.
That is the amount that would be subject to taxes, if you don’t use any exemptions at all. But by using exemptions, you can lower your tax bill even more.
So what are exemptions?
Exemptions, for the purposes of property taxes, are like tax deductions. It lowers the amount of money that is subject to taxes.
There are all kinds of exemptions out there, and they vary by city and county.
For example, in the city of Atlanta, there’s the:
- $30,000 basic exemption,
- $10,000 state exemptions,
- county exemptions,
- exemptions for senior citizens,
- low-income exemptions,
- exemptions for surviving spouses,
- disabled veterans,
…and so much more!
That’s a lot of exemptions!
And this is not unique to Atlanta – 90% of states have exemptions.
There are only 2 states that do not have exemptions – New Jersey and Pennsylvania.
So unless you live in those 2 states, there is a high probability that there are exemptions available that you can use to lower your tax bill.
However, you will need to check the eligibility requirements in your city to see if you are eligible to claim any of those exemptions.
A lot of the exemptions in Atlanta are for seniors, veterans, surviving spouses, and things like that.
But one of our team members found out that he was still able to find one that he was eligible for – a $30,000 exemption for just being a resident and owning a home in the city.
This is mind-boggling to us because most homeowners in the city would be eligible for something like this, and probably have no idea it exists.
And speaking of states and taxes, read this post next to discover the top tax-free states in the U.S.
Now let’s move on with our example here so we can give you the exact steps to take.
So remember, your net assessment value is what you’re taxed on.
The millage rate is the tax rate that is applied to your net assessment value to arrive at what you owe for taxes.
As you can see here, there are a variety of different millage rates used to calculate the taxes due.
And you might also notice that these millage rates vary for different line items.
This is due to the 5th moving piece of property taxes – the entities that levy the taxes that you pay.
Each entity assesses a different millage rate to fund things in your city, like schools, parks, and other operating expenses it has.
So now that these 5 moving pieces of property taxes, let’s get to the fun stuff.
How to Pay Less in Property Taxes
There are two primary ways to lower your property taxes.
1. Appealing the fair market value of your property
As we mentioned earlier, the fair market value on your property bill is what your city or county thinks your property is worth.
However, if you have a reason to believe that your property is worth less than what is stated on your bill, then you should appeal it.
Although your property tax is based on the assessed value of your property, that assessed value is based on your fair market value.
So if your fair market value is too high, so will be your assessed value.
That’s why if you disagree with the fair market value, this is what you should do if you are in this situation.
- Read your assessment letter
In most cases, your local government will send out a notice with your property tax assessment. If you believe your fair market value is too high, you should challenge it immediately.
Normally, you only have about 30-40 days to submit your appeal, so you have to act fast here.
If you miss your deadline, then make sure you submit your appeal in time next year.
- Check the data
Then, you should check the facts listed about your property.
Is the lot size correct? There’s a big difference between 0.2 acres and 2 acres.
Review all of the facts associated with your property to make sure that there are no incorrect assumptions listed there
- Check the comps
The next thing you should do is check the comps of recent properties that have sold and that are comparable to yours.
And then, you can look at what they are paying in property taxes in comparison to you. Most local governments have public databases that allow you to see this information.
If you find that comparable properties are being assessed lower property taxes than you, then you may have a valid case for lowering your property taxes.
Most local governments use systems to automatically calculate the fair market value of your home.
And this could be completely different from what your home actually appraises for based on the current market conditions.
- Request a formal review
Once you’ve done your research, call your local assessor’s office and let them know that you would like to discuss your assessment and present your case.
Ask for a formal review of your assessment and see if they will revise your assessment.
- Appeal the review if you disagree with it
If your review is unsuccessful, you can appeal it. However, if you get to this point, you might want to consider hiring a lawyer.
We’d personally call it quits after the review is unsuccessful, and move on to the 2nd strategy to lower your property taxes.
2. Using property tax exemptions
A much easier path to lowering your tax bill might be to determine if you qualify for any property tax exemptions.
We showed you this earlier. Most cities have exemptions that you can claim to lower your property taxes.
So here are the steps you should take.
Step 1: Find the website of your assessor
You can typically find exemptions on your assessor’s website.
If you do not know this, you can normally find it on your tax notice or bill. If you don’t have this available, then just google it.
When one of our team members filed for an exemption, all he had to do was go to the assessor’s website and they had an entire page with information on the different exemptions available.
If this is not available, then call them to inquire about the different exemptions available and how to apply.
Step 2: Submit an application
The next step is to submit an application. Back to our example earlier (one of our team members), he was able to do this online in about 15-minutes.
He did need a little bit of information though. He needed:
- his parcel ID number, which he found on his tax notice,
- his driver’s license, and
- his car tag number
So you may need to have these things as well, but be sure to find the specific requirements with your local tax assessor.
And then boom, once your application is submitted, your work is done.
You’ll just have to wait to hear back on if your exemption filing was successful or not.
And there you have it, folks – those are 2 main ways you can pay less in property taxes.
You can appeal the fair market value assumption they made, or you can claim exemptions to lower your net assessed value.
But if you really want to save more on your taxes, then work with our tax experts!