Homeownership is one of life’s great highlights, but ask homeowners about paying property tax and they'll tell you it's one of their least favorite responsibilities. But as much of a downer as they are, property taxes are vital for funding schools, libraries, police departments, fire departments, and public works like roads and parks.
Savvy homeowners and prudent buyers are probably aware of the property tax rates in their area, but they may not understand the factors that can drive their property tax rates up. We're here to help! (With the understanding part, that is.)
So when tax season rolls around, if you find yourself having to shell out more than you did last year, one of these five reasons might be to blame.
1. Home improvements
Renovating a bathroom or kitchen can revitalize a home and add to its worth, but it's also the most common reason why your property taxes rise, says David Rae, a certified financial planner and president and founder of DRM Wealth Management in Los Angeles. Why? Improving your home makes it more valuable. That, in turn, increases your property taxes.
Converting a walk-up attic or basement into a livable space is also likely to trigger an automatic reassessment, says Rita Patriarca, a Realtor® with Re/Max Encore in Wilmington, MA.
Rae suggests that homeowners run the numbers first. Calculate how much the work will cost you, how much the renovation can add to your property's value, and whether you can afford a higher tax bill. If you find that the cost of the work is likely to leave you with too little money to pay your higher taxes, Rae recommends holding off and saving more money before you do the work.
Although your tax bill will go up when you renovate, the good news is that you will directly benefit from the update in the form of a brand-new amenity in your home. That’s not the case in some of the scenarios that we describe below.
Communities and counties periodically reevaluate properties. During these revaluations, government officials or hired appraisers review all real property to figure out its current assessed value. Revaluations are needed to make sure that the tax burden is spread equitably and accurately among the area's homeowners.
Lorrie Beaumont, appraiser and owner of LB Appraisal Associates in Westwood, MA, says revaluations are the second most common reason that property tax bills increase.
During the evaluation, an expert will take into account a home’s location, size, and type, and any changes since the last evaluation. The expert will also review home sales and valuations in the neighborhood, changes in the economy and housing market, and any changes in the area that may have improved or reduced a home’s value. Even if the assessor doesn’t enter your home, he or she will review permits to see whether you have undertaken any improvements. So, if you’ve renovated or expanded your kitchen, you can expect higher taxes.
A revaluation doesn’t automatically mean that your taxes will go up, though. For instance, let’s say there’s been a lot of building in your community lately. Having more taxpayers in your community may help offset a tax bill increase.
3. Nearby home sales
If your neighbors sell their homes for more than the asking price, your property taxes may rise. That's the unfortunate fact, but it's out of your hands.
Home sales affect what other houses in a neighborhood are worth. While that’s great for your property's value when you decide to sell, it means a higher tax bill in the meantime.
Rae points out that, for you, this is the least advantageous way your tax bill can increase, because you're not actually benefiting from living in a nicer home. Instead, you will be paying higher taxes because your neighbors made out like bandits!
4. New schools
Building a new school is great for students and teachers, and for the community overall. However, it will come with a hefty price tag that is likely to entail higher property taxes.
There are two reasons why property taxes can increase after the construction of new schools:
- Communities and counties often increase taxes to help pay for school projects.
- A new school will bring new families to town, which will make your community a more desirable location. The hotter market and the greater competition for homes are likely to lead to bidding wars and higher property values. And, of course, higher property values mean higher taxes.
5. Higher government budgets
One of the main reserves on which cities and counties draw to fund their budgets is the property tax. If government employees are owed a raise, or other budgetary needs increase, the residents' taxes may need to be increased to help foot the bill.
But rest assured that a community can't raise taxes at whim: There are limits that require voters' approval. For instance, Proposition 13 in California and Proposition 2½ in Massachusetts limit how much property taxes can increase.
Still, that doesn’t mean your property taxes won’t go up each year. These limits just put a cap on the increases unless the community votes to raise taxes even higher that year.
Ways to protect yourself against property tax increases
So how can you, as a homeowner, push back and lower your rates (or, at the very least, make sure they don't reach stratospheric heights)?
One way is to appeal your home's property assessment, Rae says. Research home sales around you and look for similar homes that are selling for less. “Most municipalities have a process to contest your property tax bill,” says Rae. “I’ve contested the value of my home in the past, and the assessor shaved $150,000 off the taxable value of the home. Definitely worth the effort.”
You should also make sure your property records reflect the property's amenities accurately, Beaumont notes. “I have seen many instances where records say you have more bedrooms or bathrooms than you actually have, or additional living area that doesn't exist," she says. If you do find mistakes, notify the assessor's office and have the record corrected.
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