One of the “joys” of homeownership is paying property taxes. While we all want our roads maintained and our children in school, no one wants to pay more in taxes than necessary. That’s why it’s good to know that the amount of property tax you pay is more under your control than you may think. That’s right: It is possible to reduce your property taxes.
Municipalities all have procedures for “grieving” property taxes, and if you make a strong case you can get your taxes lowered, not just for a year, but for years to come. From contacting your local tax office to reviewing your home’s assessment and getting an independent appraisal, there are plenty of steps you can take to lower that annual levy. Some of them may cost you more money upfront, but there’s a chance you could save in the long run. Here, we’ve compiled a guide on how to cut your property taxes, with tips for doing it smartly.
Understand How Property Taxes Are Calculated
Before you can build a case to reduce your property taxes, you need to understand how the tax collectors arrive at the amount you have to pay. While the details vary, the taxes that homeowners pay are based upon these four components:
- The property’s appraised value: What the local assessor determines the property is worth compared to other properties in the area. Also known as the property’s assessment, it might be based upon your home’s current market value or on a community-wide reassessment that took place in the last few years.
- The assessment ratio: In Tennessee, for example, taxes on homes and farms are based on 25% of their appraised value, while in other states the ratio can vary from county to county.
- The assessed value: This is determined by multiplying the property’s appraised value by the assessment ratio. In Tennessee, for example, if a home is worth $200,000, its assessed value would be $50,000 ($200,000 times .25). But in many parts of the country, real estate is assessed at “full valuation,” that is, at 100% of the property’s assessment. In these communities, the $200,000 house would have an assessed value of $200,000.
- The tax rate: This is determined by the needs of local branches of government (e.g., county, town and school boards) to cover the costs of schools, road maintenance and so on. For example, your tax rate might be $2.7864 for every $100 of the assessed value, or .027864. Whatever the tax rate is — and it does vary significantly from locality to locality — the math works out the same. You pay that amount for every $100 your property is worth.
Once you know these four components, it’s easy to calculate what taxes you’ll be expected to pay on your property. First, figure out the assessed value. Then multiply that by the tax rate. If your assessed value is $200,000 and the tax rate is .027864, your tax bill will be $5,572.80 for that year. Yikes!
Let’s go through this same example in slow motion:
- Your home’s appraised value is $200,000.
- Multiply that by the assessment ratio in your community, which we’ll say is 100%.
- That means the assessed value of your property is also $200,000.
- Multiply that assessed value by the tax rate of .027864 to figure out what you’re expected to pay for that year: $5,572.80.
To find what your tax should be, multiply your home’s appraised value $______ by the assessment ratio in your community ______%, to get the assessed value of your property – $_____. Multiply that assessed value by the tax rate of ______% to figure out what you owe: $______.
It pays to double-check the math, especially if you’re the kind of person who balances your checkbook regularly.
Tip: Becoming familiar with the terminology and the formula will help you in your encounters with the assessor and hearing officers.
Make Your Case to Lower Your Property Taxes
Here are the steps to take to get your tax bill lowered.
- Call or visit your local assessor’s office to find out what the process is to question the amount you have to pay in taxes and to get a copy of your property’s assessment. Don’t wait to get your tax bill. According to New York State, “By the time you receive your tax bill, it will be too late to file a complaint against the assessment on which your bill was based.” While that may not be the case where you live, why take a chance?
Don’t go in with an attitude. While your town’s assessor may be busier than usual, more than likely she will help guide you through the process. Do ask:
- What to do if you find a mistake on the assessment or a factual error about your property.
- Where the best place is to find information on comparable properties. If you’re in luck, your community will have this information available on the web.
- What to do if your research shows that your property isn’t assessed at the correct amount compared to similar properties.
- When the deadline is for this (or next) year and what other details you should know so you can follow the process to the letter.
- If you’re eligible for any special property tax rebates — perhaps because you’re a senior citizen, have a low income or simply live in your state. For example, New York has a program known as STAR (School Tax Relief) to save homeowners money on their school taxes. By completing a short form, folks in the Empire State can see a reduction on their next bill. So ask your tax assessor about any possible programs.
- Go over your home’s assessment in detail. Note all discrepancies, especially major ones. Does it say that you have three bathrooms instead of two? Is your house closer to 2,500 square feet, rather than the 3,500 square feet that shows on the assessment? Measure to find out the exact footage. Is yours a frame house, not brick? Did a typo make your dwelling appear a couple of decades newer than it actually is? Does it say that your home is in good condition when what you really own is a fixer upper with a wet basement? Errors like these, which make your property seem more valuable than it really is, can cost you money every year for as long as you own your home.
- If you find mistakes, speak to the assessor and request that they be corrected. Be nice! A tax assessor, being human and hassled, can make mistakes. It’s nothing personal, so don’t treat it that way. Hopefully, you can resolve these errors in a pleasant meeting. If photos will show what you mean about the assessment being incorrect, bring them with you, along with your measurements, your property’s survey, a recent appraisal … anything that will objectively show what you mean.
In many communities, your only alternative will be to file a grievance. Be sure you understand what is required, when the deadline is, where and when the hearing will take place, and so on. It’d be a shame if a technicality kept you from saving on your taxes — but it might if you’re not careful. Remember: It’s well worth the investment of your time to make sure errors that pump up your property’s assessment are corrected. You’ll cut your home-owning costs for years to come.
- If there are no mistakes or they are in your favor (it happens, folks), you still want to make sure your assessment is the same or lower than comparable homes. If you find similar homes that are assessed for less than your house, they pay less in taxes than you do. If you find better homes that pay less, you certainly have good reason to appeal for mercy — or a lower assessment!
Make sure you know the grievance process in advance and follow it throughout. A good way to get going is to take a walk around your neighborhood and jot down the addresses of homes you think are quite similar to your home — that is, they share the same age and size. Take pictures of ones that appear to be in the same condition, if they are on lots that are about the same as yours. If you have a double-corner lot, don’t bother with smaller lots and vice versa.
While strolling, write down the addresses and take some pictures of homes that are probably worth more than yours — homes that are bigger, sturdier, newer and so on. If you discover that they pay less in taxes, you’ll have a good case to make. Similarly, if you know of any homes that have recently sold in the area, include them as well. If they are comparable to your home but sold for significantly less than your home’s assessment, you’ll have more to talk about at the hearing.
Hopefully, your assessor can give you the link to a website that has accurate information for your community so you can look up these addresses, check the property details (e.g., square footage, number of rooms, size of lot), and see the assessment as well as what they are paying in taxes.
The comparisons are much easier to find when you can cruise around one official site and soon see what every house in your neighborhood is worth. If that’s not possible, stop by a local real estate office and ask an agent to help you use the Multiple Listing Service (MLS), which may be computerized in your county. You may discover that there is easy public access to MLS. If not, it won’t take a realtor long to help out.
Typically used to help buyers find homes, the data that appear on MLS make it easy to look up the homes you’ve scouted. While you’re at it, use MLS to find other similar homes to see how much their owners pay in taxes. MLS can also be used by the realtor to perform a “comparative market analysis” of your home — i.e., where it is compared to similar properties that have recently sold.
It’d be great if the realtor would print out this information for you, which may even include pictures of the inside and outside of these homes, if they have changed hands in the last few years, and if they are currently on the market. You’ll want the print outs as part of your case during the grievance process. If she balks at the expense, you can point out that sooner or later, you’ll be a seller and a buyer in search of an agent — or simply ask to have links to the relevant documents emailed.
If your municipality doesn’t make the information available online and its MLS is still in the Dark Ages, you may find yourself having to go to a county office building for the information. You assessor will be able to tell you the best way to find the information you need on comparable properties.
- In building your case, take another look at your house. When Diane Rosener, who published a penny-pinching newsletter for many years, challenged an unfair increase in the assessment on her house, she decided to take pictures of the inside — “our focus was on anything outdated, including the 1960s kitchen and bathrooms, the old plumbing and wiring, and the remains of the 1950s family room in the basement,” she said. “We took pictures of our problem areas and ‘works in progress.’ For example, the plumbing leak in the living room ceiling, the hardwood floor that has plywood ‘patches,’ the entry with a plywood floor and the cockeyed step, and the toilet in the basement that isn’t connected to plumbing.”
Rosener, who put together quite a dossier, was able to get the increase in her home’s assessment knocked down by 40%. She advises “a picture is truly worth a thousand words. You will be trying to convince someone to lower your property taxes who hasn’t seen your house, or maybe hasn’t even been in your neighborhood. Take plenty of photos, even if you don’t use them all.”
Beyond that, make sure that any property changes, especially those that would negatively affect your home’s value, are included in the assessment. Don’t leave out any modifications.
- Presentation is everything! The local tax office may have forms that you have to fill out. If not, put together a brief overview that summarizes what your property searches revealed. Here’s an example: “Using the MLS Comparative Market Analysis feature, we discovered that there are six houses exactly like ours that recently sold in our development for 20% less than our home’s assessment. We have attached that analysis as well as photos of the relevant properties, including our own. Also, measuring our home exactly as the assessor advised, we find that it is 2,500 square feet, and not the 3,500 square feet that show on our assessment.”
Make sure you organize the pictures and documents you collect. Highlight the key findings so a referee can look through the pile and see that the comparables are truly comparable, and that they are assessed for less than your house.
Rosener recommends that if you don’t get an answer on the spot that you “leave the documentation with the referee or committee. (Be sure you’ve made copies for yourself.) You want the person making the decision to be able to look through the documentation and pictures at his own speed instead of having to rely on his memory.”
If things don’t work out the way you hoped, you can find out what the appeals process is. At that point, you’ll have to weigh the possible tax benefit against the costs of going to court. (You can do the math and see if your potential tax savings will be worth the expense.)
But if you did your homework in the first place and were able to show that your property’s assessment is unfair in a calm, reasoned way, the odds are very good that you will get your taxes cut.
Remember, having good credit can make securing a mortgage more affordable, so if you’re thinking about moving in order to pay less in property taxes, be sure to check your credit scores ahead of time. You can do so by viewing your free credit report snapshot on Credit.com.
Pick Your Battles Carefully
As you weigh your options for getting your tax bill reduced keep in mind that, while it’s worth investing the time and energy to make sure you aren’t paying more in property taxes than is fair, railing against high tax rates won’t get you anywhere. Decisions are out of the control of the local officials who can take another look at your tax bill.
Of the four components that go into calculating your tax bill, the only one you have a chance of getting changed locally is the assessment, the amount that the assessor decided your home is worth, also known as its appraised value. Math errors, incorrect classifications and out-of-date information are just a few of the reasons that your assessment might be just plain wrong.
Everything else requires the involvement of legislators and other policymakers. By all means, get involved in the political process; just don’t expect your tax bill to show an immediate response.
If you bought at the height of the market, when prices were at their highest and your assessment reflected the price you paid, even though the market really took a dive where you live, you may have an especially good case for getting that amount lowered. That’s why it’s well worth it to double-check your assessment every single year.