September 3rd, 2014 9:13 AM by Jackie A. Graves
Knowing what to expect from property taxes, and
what tax relief you can use, is an essential part of budgeting for home buying.
The last thing you want is to be caught
off-guard by a large tax bill you aren’t in a position to pay.
What are Property Taxes?
Property taxes vary by area and are used to
pay for local government things like education, emergency workers and
Property taxes are determined by the overall
market value of your home—not the price that you bought it for.
How Are Property Taxes Assessed?
This home value assessment is determined by a
tax assessor, either when the property is sold or renovated—or according to a
fixed assessment schedule.
If you think your property assessment is too
high, you have the right to appeal it.
Budgeting with Escrow
Some loans, like Federal Housing Administration
(FHA) loans and high-risk loans, require an escrow account.
Escrow accounts work like a forced savings
account. The lender estimates the annual costs of property taxes and insurance.
Each month, you pay a portion (one-twelfth) of that cost into the account.
By doing so, you won’t have to pay a lump sum
of property taxes and insurance at the end of the year. For lenders, an escrow
account cuts down on the risk of foreclosure due to bad budgeting by the
homeowner. Escrow accounts can also be optional.
Escrow accounts can be very useful for people
who aren’t very good at budgets. They also lessen the brunt of end-of-year
costs. However, if you’re good at saving and like to micro-manage your own
finances, an escrow account might just get in the way.
If you do have an escrow account, check your
transactions to ensure your lender is paying your taxes and other expenditures
by the due date.
Tax Deductions and Relief
Many states offer various forms of property
exemption: This is where a percentage of your home’s assessed value is excluded
from taxes. The homestead exemption varies by state. Some states offer it with
a cap on the amount of money you can be exempt from while some states do not.
Other states may require the homeowner to qualify under other criteria, such as
age or income, to be eligible for the benefit.
Tax rate caps: This is the
maximum amount that you will have to pay in tax. Not all states have one.
deferral: This allows some homeowners—such as seniors, those with disabilitiesor those with low income—to delay
paying property taxes. Keep in mind additional costs like filing fees and
accumulated interest on the delayed tax can be incurred.
military veterans: These tax relief programs also vary by state, although they often apply
to veterans who were honorably discharged or have served during wartime. Check
with your Veterans Affairs office to see what you qualify for in your area.
relief: Homeowners who make eco-friendly renovations may be eligible for property tax breaks.
Planning for Property Taxes
You should find out more information about
your county’s property taxes from your local assessor’s office or your town’s
Remember, tax exemptions can vary by state,
so don’t bank on not paying for something unless you personally verify it.
Key budgeting tips to remember include what
the likely assessment value of your home will be, when the next assessment will
occur, and whether you
qualify for any tax relief.
By: Craig Donofrio| Updated from an
earlier version by Ben Apple.
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