Property ownership is a significant milestone in life, but ask homeowners about property taxes, and they'll likely tell you it's one of the least favorite responsibilities.
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| Common Reasons Why Property Taxes Increase |
However, as depressing as it might seem, property taxes is crucial for funding schools, libraries, police services, fire departments, and public works like roads and parks.
Effective Strategies for Reducing Property Taxes: A Comprehensive Guide
Smart homeowners are the ones with a house under their belt.
While savvy homeowners and cautious buyers might be aware of property taxes rates in their area, they might not understand the factors that can hike up their property tax rate. That's where we come in to lend a hand! Let's dive into understanding these reasons.
So, when tax season rolls around, if you find yourself shelling out more than last year, one of these five reasons might be to blame.
Target Keyword: property taxes
property taxes: Home Improvements
Renovating a bathroom or kitchen can rejuvenate a home and add value, but it's also the most common reason your property taxes hike up. Why? Improving your home increases its value, which, in turn, bumps up your property taxes.
Improving your home makes it more valuable.
Enhancing your home can boost its value, but it might also spike property taxes. Consider these aspects:
- Renovations elevate property worth, consequently increasing taxes.
- Converting unused spaces triggers automatic reassessment.
- Calculate renovation costs versus potential property value increase.
- Higher tax bills after renovations mean direct home upgrades.
- Prioritize financial readiness before significant home improvements.
Remember, tax implications can follow significant home upgrades, so plan wisely!
Converting an attic or finished basement into livable space is also likely to trigger an automatic revaluation.
It suggests homeowners crunch the numbers first. Calculate how much the renovations will cost, how much value the renovation can add to your property, and whether you can afford a higher tax bill.
If you find that the cost of renovations might leave you with too little money to cover your higher taxes, it recommends waiting and saving more money before proceeding with the work.
While your tax bill increases when you renovate, the good news is you'll directly benefit from the upgrade in the form of a brand-new convenience in your home. That's not the case in some of the scenarios we'll describe below.
Reassessment
Communities and counties periodically assess properties. During these reassessments, government officials or hired assessors review all real estate properties to determine their current assessed value.
Reassessments are necessary to ensure that the tax burden is fairly and accurately distributed among homeowners in the area.
It asserts that reassessments are the second most common reason property tax bills increase.
During the assessment, an expert will consider a home's location, size, and type, along with any changes since the last assessment. They'll also review home sales and assessments in the neighborhood, changes in the economy and housing market, and any alterations in the area that might have improved or reduced a home's value.
Even if the assessor doesn't step inside your home, they'll review permits to see if you've undertaken improvements. So, if you renovate or expand your kitchen, expect higher taxes.
However, a reassessment doesn't automatically mean your taxes will increase. For example, let's say there's been a lot of construction in your community lately. Having more taxpayers in your community can help offset a higher tax bill.
property taxes: Nearby Home Sales
If your neighbors sell their house for more than the asking price, your property taxes may increase. It's an unfortunate fact, but it's beyond your control.
Home sales impact home prices.
Neighboring home sales impact property values, affecting your tax bill. Consider these points:
- Higher neighboring house sales can lead to increased property taxes.
- Enhanced property values might result in a temporary tax hike.
- Increased tax bills occur despite no direct home improvements.
- While beneficial for overall area value, it leads to higher taxes.
Be aware of the impact of nearby home sales on your property taxes—it's not always in your control!
Home sales affect the worth of other houses in a neighborhood. While this is great for your property value when you decide to sell, it means a higher tax bill in the meantime.
It emphasizes that for you, this is the least favorable way your tax bill can increase because you don't actually benefit from living in a nicer home. Instead, you'll pay higher taxes because your neighbors struck it rich!
New Schools
Building a new school is excellent for students, teachers, and the community as a whole. However, it comes with a hefty price tag, likely leading to increased property taxes.
There are two reasons for this.
There are two reasons why property taxes might increase after the construction of new schools:
Communities and counties often raise taxes to help pay for school projects.
A new school will bring new families to town, making your community a more desirable place.
A hotter market and increased competition for homes are likely to lead to bidding wars and higher property values. And, of course, higher property values mean higher taxes.
Higher Government Budgets
One of the primary reserves cities and counties tap into to fund their budgets is property tax. If government employees are due for a raise or if other budgetary needs increase, residents' taxes may need to be raised to foot the bill.
It's important to know that there's a link between property taxes and the state budget.
But rest assured, a community can't arbitrarily raise taxes: there are limits that require voter approval. For instance, Proposition 13 in California and Proposition 2½ in Massachusetts limit property tax increases.
However, this doesn't mean your property taxes won't increase every year. These limits just cap increases unless the community votes to raise taxes even higher that year.
Ways to Shield Yourself from property taxes Increases
So, how can you, as a homeowner, push back and keep your rates down (or at the very least, ensure they don't skyrocket)?
One way is to appeal your home's property assessment. Research home sales around you and look for similar homes selling for less. Most municipalities have a process to contest your property tax bill. I've contested my home's value in the past, and the assessor shaved off $150,000 from the home's taxable value. It's definitely worth it.
You also need to ensure that your property records accurately reflect the property's amenities. I've seen many cases where records show you have more rooms or bathrooms than you actually have, or additional living space that doesn't exist. If you find errors, inform the assessor's office and have the record corrected.
