What is Property Tax Relief? Five Ways to Get it
LH
Last updated 03/21/2024 by
Lee HuffmanSummary:
You may qualify for a tax exemption that saves you thousands of dollars and not even know. Your tax authority won’t typically inform you about the exemptions available. You need to research what property tax exemptions are available in your area and apply. Check the websites of tax agencies in your city, county, or state, and find out what tax relief is available.
Even when you’ve paid off your home, there is one bill you cannot eliminate – property taxes. In most states, this bill will continue to increase year after year as long as the value ofba your home appreciates. But there are ways to reduce your annual property tax bill and keep more money in your pocket. What is property tax relief, and how can you get it? Keep reading to find out.
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Why do I pay property taxes?
Property taxes are a way for state and local governments to pay for the local community’s essential services. This includes fire and police departments, libraries, and local government officials.
Property taxes are also used to fund public schools. Affluent areas generally have better schools because of the additional funding provided by the taxes on high property values.
How are property taxes calculated?
Each year the local tax assessor evaluates home values. But worry – nobody will come knocking on your door.
To simplify their work, the tax assessor’s office performs a similar process as Zillow does when it calculates your home’s value. This data includes recent sales, improvement permits, lot size, square footage, and many other variables.
The tax assessor will calculate your property taxes once the value of your home is determined. In some communities, there will be taxes for state, county, city, and local governments.
If your mortgage is “escrowed,” a portion of your property taxes is paid each month. When the property taxes are due, your mortgage company will pay them for you.
Which states have the highest property tax rates?
Your place of residence can have a huge effect on the cost of property taxes. New Jersey and Illinois have the highest property tax rates, while Hawaii and Alabama have the lowest. The graph below shows the property tax rate by state and how much you would pay on a home with a median value in that state.
What is property tax relief, and how do I get it?
Property tax relief is the reduction of tax liability based on a qualified exclusion.
There are several ways to get property tax relief for your home. For example, you can adjust your home’s value, show proof of being a qualified taxpayer, or make certain improvements to your home.
Here are five ways you can get property tax relief.
1. Homeowners property tax exemption
The homeowners’ property tax exemption is known as a “homestead exemption.” This exemption allows you to avoid paying taxes on a portion of your home. Depending on the rules, your exemption will be a flat amount or percentage of the home value.
Some exemptions are based on age, income, disability status, or military service. In California, I only had to complete my homestead exemption paperwork once. For some exemptions, you’ll need to reapply each year.
2. Property tax relief for seniors and people with disabilities
Most states offer the ability for seniors and disabled people to receive a reduction in their property taxes. There are age, income, and residency restrictions that must be met to qualify. Every state has its own rules to meet its local needs.
For example, California voters passed Propositions 60 and 90 to help senior citizens. These laws allow seniors to keep their property tax basis when selling one home and buying another.
The only caveat is that the new home must be equal to or lesser than the current home. This California property tax exemption begins at age 55.
3. Military veterans property tax exemptions
Many local governments offer benefits to our military veterans to thank them for their service. Riverside County – located 60 miles East of Los Angeles – is one of them. If you are a California veteran with a 100% disability rating, you could be eligible to receive an exemption of up to $150,000 off the assessed value of your home.
4. Dispute property tax assessment
Home values have been climbing since 2010 in most areas across the country. That being so, homeowners should expect to pay more in taxes.
But what happens if your property taxes keep climbing while your home is falling in value? This is exactly what happened to many of my friends in California from 2007 through 2010.
If you feel that the tax assessor is valuing your home above market value, you can dispute their valuation. You’ll need to bring evidence to support your argument, such as an appraisal that will highlight recent sales of comparable homes.
A qualified tax attorney can help you get approved for the exemptions for which you’re qualified.
5. Home improvements
You can be rewarded for upgrading your home.
Local governments want homeowners to improve their homes to make them more energy-efficient and attractive to families looking to move into the city. These cities offer reduced or waived property taxes on the improvements.
Plus, energy-efficient upgrades serve a dual purpose. They increase the value of homes for the homeowner and reduce the strain on the local utilities.
This, in turn, will reduce the need for major Public Work investments. In other words, the government will give you a little bit of money, so they don’t have to spend a lot of it.
Frequently asked questions about property tax relief
What Is A Property Tax Exemption?
If you own a property, you will probably owe property taxes to your local or county tax authority. The tax authority will calculate the amount every tax year based on the value of your home. If home prices continue to rise, so will your property tax bill.
Property tax exemption programs help lower or eliminate property taxes for certain homeowners. In this sense, it is similar to a tax deduction. However, exemptions are better than tax deductions because they can remove your tax liability completely. For example, a mortgage interest deduction can lower your income tax, but an exemption can remove your property tax liability. Rules vary by state, but you could save thousands of dollars if you qualify.
Who doesn’t have to pay property taxes?
Some types of properties are exempt from real estate taxes. These include religious and government properties. Seniors, veterans, and those eligible for STAR (the School Tax Relief program) may qualify for exemptions, as well.
Are property tax exemptions worth the effort?
Yes, filing an application for a property tax exemption can save you a lot of money. To illustrate, the U.S. median property tax paid is about $2,000 annually or about 1% of the $200,000 median home value. Savings from exemptions will vary widely depending on where you live, your home’s value, and what you qualify for. A 15% exemption would save about $300.
Can you discharge property taxes in bankruptcy?
Yes, you can discharge your personal liability on property taxes assessed when they were payable more than a year before filing for bankruptcy. If a property tax is incurred within one year of filing for bankruptcy, it is nondischargeable. Remember that even though you may not be liable for the tax owed, your local or county tax authority may have attached a tax lien to your property when you failed to pay the tax assessed. In such a case, the lien will remain even after your Chapter 7 discharge. However, you will no longer be personally liable for the tax.
Your next steps to obtain property tax relief
First, file for a homestead exemption this tax year to get immediate relief. This is the quickest and easiest path to reducing your property taxes.
Next, take stock of your situation. Do you meet any of the common criteria listed above that will help you get an additional exemption?
Do you still have questions? Our Tax Relief Industry Study provides a deep dive into the different options available to taxpayers.
LH
Lee Huffman is a former financial planner and corporate finance manager who now writes about early retirement, credit cards, travel, insurance, and other personal finance topics. He enjoys showing people how to travel more, spend less, and live better.
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