Property Taxes & Your Mortgage: What You Need to Know

Update: Due to the pandemic, the IRS has extended the tax deadline for the 2020 tax year from April 15, 2021 to May 17, 2021. This only applies to individual federal income returns and tax payments, not a state’s income tax deadline, including state payments or deposits. 

Property taxes aren’t something collected by the IRS, but you might owe them to various state or local governments. Whether or not you need to pay property taxes depends on the laws where you live. But you might also wonder, do you pay property taxes monthly or yearly? You don’t usually pay monthly, but you might have to pay biannually. Find out more below.

What Are Property Taxes?

Property taxes are a tax levied on the value of things you own. There are some major categories of property tax, including:

  • Land, which is a tax on the value of the land
  • Improvements to land, which is a tax on the value of structures on the land, including homes
  • Tangible personal property, which is a tax on things you can own that are moveable, such as vehicles or boats

The most common type of property tax is on real property, which means both the land and the structures on it. However, it’s worth being aware of the requirements in your city, county, or state, as you might also end up with bills for other property, such as cars or trucks.

Are Property Taxes Paid Monthly?

Property taxes are not paid monthly. They’re usually paid biannually (twice a year) or annually. You pay this tax when you own a home or other real property in a state or location that charges it. 

How Do You Pay Property Taxes?

How you pay your property taxes depends on where you live and whether you’re still paying your mortgage. If you’re still paying your mortgage, you may have an escrow account.

Paying through Escrow Accounts

An escrow account is set up by your mortgage lender as part of your loan paperwork. Each month, your mortgage lender may collect required insurance payments—such as homeowners insurance—and tax payments from you. You pay these amounts when you make your mortgage payment.

These amounts then go into your escrow account. They’re later used to pay your property taxes and insurance when they’re due. While these payments are collected at the same time as your monthly mortgage payment, making it feel like they’re part of your mortgage, they are technically separate.

Paying on Your Own

Once your mortgage is paid off, the process of paying property taxes may change. You’re still responsible for paying your property taxes, but you’ll be in charge of paying them directly to your county tax collector—or whichever government office is in charge of property taxes in your area. 

In many areas, you receive a bill or notification of how much you owe in property tax. But if you think you might owe property tax and don’t get a statement, don’t assume you’re off the hook. Reach out to the local tax office to find out more about your account.

Why Is Your Mortgage Lender Even Involved in Property Taxes?

If you’re in the process of buying your home and taxes are brought up, or your lender has contacted you about property taxes, you may wonder why lenders even care about taxes. Unpaid property taxes can result in a lien. And that lien is superior to the rights of the lender.

That means if you go into foreclosure, the lender would have to pay any property tax liens on it before they can resell it and recoup their losses. This isn’t something lenders want to deal with, so they often step in to ensure property taxes are paid the entire time you’re paying the mortgage.

How Do You Know How Much You Owe in Property Tax?

The amount you owe in property taxes is fairly easy to calculate. You’ll just need some information:

  • The assessed value of the home
  • The property tax percentage for your area

For example, if you’re in a county that charges a 1% property tax and your home and land are valued at $100,000, you would owe $1,000 in taxes. Typically, the county or other tax office issues a valuation assessment prior to or around the time it issues tax bills.

What If You Can’t Afford Property Tax?

Many locations offer various forms of property tax relief. Check with your local county or state website to find out if relief is offered in your area. You may find exemptions for those over the age of 65 or credits or exemptions based on income.

Many locations also issued relief for those who owed property taxes during the COVID-19 pandemic. For example, penalties for those that owed and paid property taxes late in California were waived through May 2021.

Property and Other Taxes

Property taxes aren’t typically something you have to deal with when you’re filing your federal income taxes every April. But what you pay in various taxes—and information about your property or mortgage—might be relevant. 

File your federal and state tax returns with confidence by using TaxAct to maximize your refund. Get started with TaxAct through ExtraCredit for cashback rewards on your purchase. 

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