How Does a Tax Assessment Work in Real Estate?

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By Bill Gassett Updated February 13, 2023


How Does a Tax Assessment Work in Real Estate?

With the extreme increases in property values over the past couple of years, you may be happy that your home is worth much more than it was when you purchased it. However, what you won't be happy with are the property tax bills.

Homeowners have seen an average increase of around 18% in property taxes in the past few years. However, increases in taxes could still be waiting for many more homeowners. Since a property's tax assessment isn't updated frequently for every homeowner, many are yet to see these increases.

While it is possible to appeal your property assessment tax bill, most homeowners don't do it. Even though for most homeowners, property taxes aren't going to be their most significant monthly housing expense; it is still a considerable amount of money.

If you have paid off your mortgage, this will make up an even more significant proportion of living expenses, and increases will be more noticeable.

If you are now paying more property taxes or will be soon, there are ways of reducing this bill. If you can prove that the assessed value of your home isn't accurate, you could lower your tax bill.

Let's look at what property tax assessment is and how they work. We will also examine how to deal with an overly high assessment. When you are unfairly taxed, it always makes sense to deal with it swiftly.

What is a Tax Assessment of Property?

Property taxes are usually the number one way the local government pays for the services they provide. To set the amount of money each homeowner has to pay, a tax assessment is used to find the home's value.

The higher the assessed value, the more the homeowner has to pay. Property taxes are typically due annually, but this will be part of your monthly payment if you have a mortgage. This money goes into an escrow account until it has to be paid to the municipality.

A government assessor will complete a tax assessment to find the value of your home. This assessment could incorporate similar processes to a home appraisal, but it won't be as in-depth. The assessment results could also be very different from a home appraisal.

Homeowners need to understand that the assessed value differs from the appraised value.

Assessors will use comparable sales like a Realtor but are unlikely to follow the same processes.

If you have any exemptions, these will be deducted from the assessed value to give the taxable value. The taxable value is the figure used to calculate the property taxes.

How Your Property Tax is Calculated

How frequently the value of your home will be assessed depends on your local government. They might assess the value each year or maybe every five years; this valuation is the most significant factor in deciding how much tax you will need to pay.

The assessed value minus deductions will be multiplied by the mill rate. The mill rate amounts to $1 for every $1,000 of taxable value. The local government will set the number of mills levied on the assessed value.

What Happens If You Believe the Assessment is Wrong?

You have the right to appeal an assessment of tax for your property, though the exact process varies in different states.

If you disagree with the assessment, contact your local tax authority to find out how you can appeal. This could lead to a reassessment, but you might also be able to freeze your taxes in some situations.

Usually, an appellate tax board will hear the cases after unsuccessfully trying an appeal at the local level.

You can ask a local real estate agent to help put together a comparable market analysis.

Appealing Your Tax Assessment

If you want to appeal your assessment, you should do the following:

  • Follow the rules. You will likely receive your assessment near the beginning of the year, and there might only be a limited amount of time to appeal. You need to know what to do and be ready to appeal this at the right time.
  • Claim deductions. There might be many reasons you can claim a deduction or other tax benefits. Check what you qualify for.
  • Look for errors. Check your property’s record card for mistakes. You can get this from the assessor’s office or the municipality’s website.
  • Check comparables. Search for sold prices in your neighborhood to see if the assessment makes sense compared to similar homes. Fair market values should be similar.
  • Provide evidence. Comparables can be used as evidence to bolster your appeal. Is your home in a similar condition to these comparables? If it isn’t, this is another reason why your home should be reassessed.
  • Make your appeal. If your claim is refused, you can take it to the appeals board.

If this goes well, you will have less tax to pay each year until another assessment takes place.

Final Thoughts on Tax Assessment

Your tax assessment will involve understanding your property's physical characteristics, location, size, and other factors to determine the current taxable value.

Occasionally, your tax assessment may not make sense relative to other similar properties. When that happens, it is essential to deal with it immediately.

You can only challenge your property assessment for the current year in a set period. Typically, a tax assessment must be contested in the year's first quarter.

The time for contesting can vary from state to state, so make sure you check early on.

Once you have the contest results, you can enter your current amount into your tax software. We have found Credit Karma to be excellent. Best of luck!

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