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Understanding Property Taxes for Your Home

Posted by Chip Glennon on Tuesday, July 23rd, 2019 at 11:25am.

How Do Property Taxes Work?Property taxes are designed to provide finances to the community the Leavenworth homeowner lives in. Schools, parks, and other shared spaces get the care and attention they deserve when the organizations have the full support of those who live in the neighborhood. But while property owners interests may be aligned with the end goals of property taxes, the fees are a significant enough expense that homeowners need to be prepared. Find out more about how property taxes are calculated, and how homeowners can plan ahead for them both now and in the future.

For informational purposes only. Always consult with a certified tax expert before proceeding with any real estate transaction.

Who Decides the Cost of Property Taxes?

While property taxes may go toward the local community, it's not just local officials making the decision. State officials will also weigh into the debate based on everything from their yearly budget to the emergency needs of the area. Local officers may work with state officers during this process, but they usually come up with two separate numbers and then combine them together. Only then will a homeowner know the exact percentage they'll be paying from year to year.

What Is the Percentage Based On?

Usually, what a person pays is based on both the value of the home and the value of the property surrounding the home. If the home's assessed value rises every year because the homeowner is constantly making improvements to the property, then they'll pay more in property taxes based on the new value. If the neighborhood is dramatically increasing in value, this can also raise people's property taxes (regardless of the general upkeep of the property).

Can Property Taxes Be Deducted?

Property tax laws have changed recently when it comes to deductions, especially for those who own multiple homes or who are generally charged higher percentages for property taxes. While most homeowners will still be able to write off property taxes on their federal forms, they can only write off up to $10,000 combined of state and local income and property taxes. Before, a homeowner could essentially write it all off if they chose to itemize.

Can Homeowners See Historical Property Tax Data?

Yes. Property taxes are not confidential, so homeowners should do their research before they consider buying a home. While property taxes are subject to change, going back through the last 10 years of data can give a homeowner an idea of how the neighborhood has fared over time.

If the property taxes are relatively similar from year to year, buyers can glean that the demand for the homes has stayed about the same. If it's drastically increased, it indicates a booming economy and rising property values. If the property taxes have been on a bit of a roller coaster, it may tell the prospective home buyer that the stability of the neighborhood is in trouble.

Are There Any Exceptions to Property Taxes?

Failing to pay property taxes usually means having excess late fees added on to their bill. In the most severe cases, failing to pay property taxes can ultimately result in home foreclosure. That being said, some groups, such as veterans, are given protection status depending on the state in which they live. Other states will do everything in their power to keep their taxes down as low as possible to give people an incentive to move to the area.

Some homeowners living in wildly popular areas that have skyrocketed in value will have a cap imposed on how much property tax they need to pay. For example, Orange County has vastly limited how much homeowners are allowed to pay in property taxes. Homeowners should look into the local laws of their area before determining if they have enough support from the local officials to handle an increase in property taxes. Without enough of a financial cushion, property taxes can be the proverbial straw that leads to a loss of the property.

How Do Homeowners Pay for Property Taxes?

There are several ways in which homeowners can pay for their property taxes:

  • Credit card: Some cities will allow homeowners to place their property taxes on a credit card. This may come with a credit card processing fee of up to 3%.
  • Mortgage payments: Some homeowners bundle their property taxes into their mortgage payment, so they only have to worry about a single bill. The exact stipulations of this process are determined by the lender.
  • Cash, check, or money order: Most local governments allow their citizens to pay by traditional means of payment via local city services.

Property taxes are generally charged twice a year unless added into the monthly conventional mortgage payment.

Property tax laws can be extremely specific to the area in which a homeowner lives, so it's important to limit assumptions before the purchase of the home. However, knowing the basics of property taxes can help homebuyers understand more about how their budget will affected by both current and future laws.

For informational purposes only. Always consult with a certified tax expert before proceeding with any real estate transaction.

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