There are a lot of perks that come with home ownership, but the numerous responsibilities and financial obligations can, at times, seem overwhelming. Besides your monthly mortgage payment and annual homeowners’ insurance, there is the dreaded arrival of the property tax bill in the spring and winter time.
Whether you like it or not or agree with what it is intended to do, property tax seems to be a necessary evil. As such, it is in your best interest to understand the components of your bill. This knowledge can help you plan appropriately for the arrival of the bills as well as be an educated consumer who understands how to stand up and fight any changes in assessment.
The ABC’s of Property Tax
It really could be said that there is more than an A, B, and C to describing the components of property tax. Understanding property taxes is not easy, especially if you live in a state where state and local property taxes are required, which can further complicate deciphering what your bill really means.
Law.com dictionary defines property tax as “an annual governmental tax on real property or personal property based on a tax rate (so many dollars or cents per $100 value of the property).” Property tax must be paid by the owner of any land or buildings that are affixed permanently to land. Enter one hash mark on the benefit side of being a renter.
First, let’s start with the purpose of property taxes. The intent is to raise money for various city and county projects, such as the improvement and maintenance of parks, schools, water district, community college, mosquito abatement, trauma and emergency services, and the fire department to name a few. The assessments will vary from city and county around the nation. For example, Law.com mentions that there can be special assessments for particular public property improvements, such as sidewalks, tree planting, or storm drains, which are charged to each property owner on the street in which the improvements are made.
Below are some terms that are helpful in understanding what your property tax bill means.
| Term |
Definition |
| Assesed value |
According to Law.com, the assessed value of real property in California is based on the amount of the last sale of the property, and the tax is limited to 1% of that figure (with a few minor exceptions) under the so-called "Proposition 13" state constitutional provision. The terms of assessed value often differ from state to state. |
| Fair market value |
According to Wikipedia, this is the “estimate of what a willing buyer would pay to a willing seller, both in a free market, for property.” |
| Appraisal |
The valuation of a property. |
Second, your property tax bill is based on two variables: a property’s assessment and the tax rate applied by the county, city, parks, and schools. The mathematical equation used is:
Taxable value x 35% = assess value x tax rate = property tax due
(Usually paid over 2-4 installments, depending on the state)
If assessments go up, then taxpayers can still avoid an increase in taxes if all the taxing districts (county, city, schools, etc.) lower their tax rates. Unfortunately, it seems that, across the country, assessments have outpaced any decline in tax rates, especially due to the rapid rise in housing prices during the recent boom. Now, as foreclosures and downturns in home prices hit the nation, it will be interesting to see just how much that will result in a decline in property tax due to a decreased assessed value.
A Rollercoaster Value
Now, onto what you really want to know: how the assessor’s office comes up with that amount in the total taxes due column that leaves you in a state of shock. Your assessed value goes up and down according to a number of factors, including the aforementioned movements in housing prices.
Major improvements to your property can also substantially increase your tax bill. These types of improvements include a swimming pool, room addition, patio cover, guest house, workshop, etc. While these improvements are all worth considering because they add entertainment, functional, and re-sale value, you should first get a sense of the estimated increase in your assessed value. If you are purchasing a home, then you may want to ask about additional taxes if it is located in master-planned communities or if there are special taxes added for new infrastructure, such as bonds for schools.
There are ways in which the burden of property tax can be lowered. Exemptions are available to offset some of the expense. These exemptions vary from city and county so it is best to check with your local tax assessor’s office. You can question the assessment value by writing to or calling the assessor and requesting to speak to an appraiser and they can re-evaluate the assessed value, which may result in a decrease. In terms of changing the actual tax rates, though, it is only local elected officials who can address such an issue, so you would need to appeal to them – most likely around re-election time!
Tracking Your Own Property Tax
An online reminder service can help you to better prepare for property taxes, track changes in assessed value, and pinpoint any issues that need to be addressed with the county tax assessor’s office – not to mention send an e-mail alert, telling you that it is time to pay the bill!
Ownersite Technologies is making it their business to help you maximize the investment in your home through a valuable Web portal where you can record and track all types of information related to the maintenance and care of your home. The Taxes section of Home Ownersite makes it simple to record and store city, county or state taxes on all your properties. You have the option of inputing a number of variables:
- Property tax year
- Type of tax
- Description of tax
- Account
- Fair market value
- Assessed value
- Tax rate
- Credits
- Amount
- Notes
- Files, including scans of the bill or checks showing payment
Once you have added two or more years of tax records, Home Ownersite will display a graph for you with the assessed value, fair market value and tax amount so you can chart the tax trends of your home and increase your knowledge of how property taxes work.
Knowledge + Record-Keeping = Savvy Financial Decisions
After all, knowledge is power, and, as a homeowner with this type of knowledge, you have the power to make savvy financial decisions that will add to the investment value of your home while more efficiently budgeting for expenses, such as property taxes. This part of homeownership does not have to be a burden when you educate yourself and maintain excellent records.
