What You Should Know About Real Estate Property Taxes

If you are a homeowner, you're probably all too familiar with real estate property taxes. If you are looking to buy a home, you need to acquaint yourself with what such taxes are all about.

Property tax is used for the needs of a specific area — whether it's a town, county, village, or city

— to pay for everything from firefighters’ salaries to road repairs to improving the schools. The tax is determined by combining the property tax rate with the assessment of the property as conducted by an authorized assessor. Therefore, if you move into a community with an eight percent property tax rate and your home is assessed at $300,000, your property tax would be $24,000 ($300,000 x 8 percent). While the tax rate is set, the assessment is subjective. The assessor can value a property based on a number of factors including, but not exclusive, to:

The sale price of similar properties in the area;

The cost necessary to replace the property;

The potential value of the property if it is used to make money through rental, sale, or other legal and approved means;

The historical value of the property.

Therefore, you can contest the assessment of a piece of property by contacting your local tax assessment office or tax board. These offices can also provide information on how to go about such a process. But first, talk with your neighbors and find out at what prices their homes are valued. Also talk with recent buyers, sellers, and realtors to get an idea of what the assessments and property taxes are for other homeowners in your neighborhood.

If you're looking to move into an area, research the area's rise in property taxes over the past several years. Many states have seen steady property tax hikes in recent years, and residents are very concerned. States that have low or no sales taxes on items such as clothing may be more highly dependent on property taxes. New Jersey and Connecticut are two states that fall into that category.

Citizens from a number of states have already begun voicing property tax complaints. State government officials are looking for ways to fix the growing problem, but are not having great success. States have tried alternatives ranging from finding other sources of tax revenue to new forms of property taxation. In Michigan, for example, all property tax revenue goes to the state, where it is then provided to various areas proportionately based on their needs. This system has wealthier neighborhoods helping fund the needs of areas in redevelopment. In most states, however, new plans to curtail the rapidly rising property taxes are still on the drawing board.

For now, the best you can do is to have your assessment reviewed if you're a homeowner and feel that you're paying very high property taxes. If you're shopping for a house, be aware of the property tax and the recent increases in the areas where you're looking.