Property taxes are an essential part of homeownership, yet many homeowners may not fully understand how they work. In this article, we’ll break down what property taxes are, how they’re calculated, and why they’re important for funding local government services like schools, roads, and public safety.

Property Tax Overview

Property taxes, also known as real estate taxes, are payments made by homeowners to local governments like cities and counties. The amount you pay depends on how much your property is worth. These taxes help fund important services in the community, such as schools, police and fire departments, roads, and libraries.

Real property includes land and anything on it, like homes or businesses. Property taxes apply to these real properties, whether they are houses, commercial buildings, or vacant land. A local tax assessor determines the value of a property by considering its size, location, condition, and any improvements made.

Understanding property taxes is important because they support essential services in your area. What you pay can vary significantly based on your property's value and local tax rates, which can differ widely between places. Knowing how property taxes are calculated and what they cover is crucial for managing the costs of owning a home.

How Do I Pay Property Taxes?

Paying property taxes is an important responsibility for homeowners. Generally, property taxes are paid annually or semi-annually, depending on your local tax authority's schedule. Here are the main ways homeowners go about paying these taxes:

1. Direct Payment to the Local Tax Authority

Homeowners may receive a property tax bill from their local government or tax assessor’s office. This bill will detail the total amount of taxes owed, along with the payment due dates. You can typically pay these taxes directly to the local government via methods such as online payments, by mail, or in person at the tax office.

2. Payment Through Your Mortgage Lender (Escrow Account)

If you have a mortgage, your lender may pay your property taxes for you through an escrow account. This means the lender will take part of your property tax amount from your monthly mortgage payment. This money is saved in an escrow account and used to pay your property taxes when they are due. This setup can help you manage your taxes better by spreading out the cost over the year. Each year, your lender will check your escrow account to make sure there is enough money to pay the taxes.

What Happens if I Don’t Pay Property Taxes?

Not paying your property taxes can have serious effects. Local governments need these taxes to fund public services, so they handle non-payment strictly. If you miss a payment or don’t pay at all, you may face penalties, interest charges, and extra fees on the amount owed.

In severe cases, unpaid property taxes can lead to a tax lien on your home. This means the government has a legal claim on your property until the debt is paid. If the taxes stay unpaid for a long time, the government can start foreclosure proceedings, which could result in selling your home to recover the owed taxes.

To avoid these problems, it’s important to keep up with your property tax payments. Make sure they are paid on time. If you have an escrow account with your mortgage lender, it can help by automatically making these payments for you.

How to Calculate Property Taxes

Property taxes can be one of the most significant costs for homeowners, so understanding how they are calculated is key to managing your finances effectively. The calculation of property taxes is based on a few core components: the assessed value of your property, the local tax rate, and any exemptions or deductions you may qualify for. While the exact method can vary depending on where you live, the general formula for calculating property taxes is the same: assess the value of your property, apply the local tax rate, and account for any adjustments.

Let’s break down each element in more detail:

1. Assessed Value of the Property

The first step in calculating your property taxes is determining the assessed value of your property. Local tax assessors are responsible for evaluating the value of all properties within their jurisdiction, typically on an annual or biennial basis. The assessment is based on a variety of factors, including:

• Market Value: The current market value of your property is a key factor in determining its assessed value. The assessor will consider recent sales data for similar properties in your area, as well as factors like location, square footage, condition of the home, and the amenities it offers.
• Improvements or Renovations: If you've made significant improvements or renovations to your property (such as adding a new room, remodeling the kitchen, or installing a pool), this may increase your property’s assessed value.
• Land Value: The value of the land itself is also considered when calculating the total assessed value of your property. For example, properties with large lots or in prime locations may have a higher assessed value.

After assessing the value, the local tax authority may apply a percentage of the market value (often referred to as the "assessment ratio") to determine the taxable value. For example, if your property is worth $250,000 and the assessment ratio is 80%, your taxable value would be $200,000.

2. Local Tax Rate (Mill Rate)

Once the assessed value is determined, the next step is applying the local tax rate, which is often expressed as a "mill rate." A mill rate represents the amount of tax payable per $1,000 of assessed value. For example, a mill rate of 20 mills means that for every $1,000 of assessed property value, $20 in property taxes is due.

It’s important to note that the tax rate can vary significantly depending on your location. Urban areas with more services and infrastructure may have higher rates, while rural areas may have lower rates.

3. Exemptions and Deductions

In some cases, homeowners may be eligible for exemptions or deductions that can reduce their property tax liability. These exemptions vary by jurisdiction and can apply to certain groups of people or specific property types. Some common exemptions include:

• Homestead Exemption: Many localities offer a homestead exemption for primary residences, which can lower the taxable value of the property. For example, if your home qualifies for a $50,000 homestead exemption and your property is assessed at $200,000, your taxable value would be reduced to $150,000.
• Senior Citizens or Disabled Persons Exemption: Some regions offer additional exemptions or tax breaks for senior citizens or people with disabilities.
• Veterans Exemption: Veterans or surviving spouses of veterans may qualify for a reduction in property taxes.
• Energy-Efficient Improvements: Some areas offer exemptions or credits for energy-efficient upgrades like solar panels, insulation, or energy-efficient windows.

These exemptions, if applicable, reduce the taxable value of your property, which in turn lowers the amount of property tax you owe.

4. Special Assessments

In addition to standard property taxes, some homeowners may face special assessments that fund specific local projects, such as road repairs, sewer improvements, or park development. These special assessments are typically calculated separately from the general property tax and are often levied based on the benefits your property receives from these improvements.

Navigate Property Taxes with Confidence

In conclusion, property taxes are a fundamental part of owning a home and are used to fund vital local services and infrastructure. Understanding how property taxes are calculated, paid, and assessed can help homeowners better manage their finances and avoid any surprises when it comes time to pay.

To learn more about property taxes and how they may impact you, reach out to the mortgage experts at Union Home Mortgage today!

The information provided here is for informational purposes. When interest rates and loan program information are included, it is for illustration purposes only and not a solicitation or quote for services. This is not an advertisement or loan estimate. Current interest rates, loan programs and qualification criteria can change at any time. If you have questions or need assistance, we can be reached using the contact information above.