Understanding How Property Taxes Work in Real Estate
In the world of real estate, property taxes can be understood as an annual or semiannual charge that is levied by a local government paid by the owners of real estate in the jurisdiction. The amount owed on a property tax is the percentage of the value assessed in real estate. Property tax receipts are the source of revenue for local governments in the U.S. typically used to fund schools, libraries, road repair and construction, water and sewer departments, and different services that will benefit the community.
In this article, we will discuss understanding how property taxes work in the world of real estate.
Who Pays Property Taxes?
Owners of real estate typically pay property taxes through an escrow account. The escrow account holds a portion of your monthly mortgage payment and pays your tax bill when due. You can always choose not to put your taxes in escrow every month and pay them on your own, but most homeowners opt not to go that route. If you do not pay, the county you reside in can put a lien on your home. When selling the property, they will collect back taxes before you see them proceed.
When are Property Taxes Paid?
There is typically a schedule for paying taxes for every city, which can vary from monthly to annual and semiannual, depending on where you reside. Having funds taken from your mortgage payment every month and put into escrow is a wonderful way to ensure your taxes are paid, even if you are unsure of the precise date for taxes in the municipality you live in.
How Do You Calculate Property Taxes?
Property taxes are different in every state, so specific information is important when getting an exact amount. In most cases, property taxes are going to be calculated by multiplying the local tax rate by a specific property’s assessed value.
- Determine the Value Assessed of the Property
You will need to start by determining the assessed value of your property before multiplying it by the tax rate. To do so, go to your local municipality’s online tax resource and look up your property. An assessed value can be found based on your home’s size, recent sales in the area, the state of the local real estate market, etc…
- Qualifying Exemptions Should be Deducted
Areas around the country provide property tax exemptions to make owning a home more affordable. If you qualify for these common property tax exemptions, they include the following:
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- Homestead Exemption: Provides tax relief for those who reside in their property most of the time. Vacation homes and investment properties do not qualify.
- Senior Citizen Exemption: Places offer tax relief to seniors who reside in their primary residence on a fixed income.
- Homeowners with Disabilities Exemption: Tax deductions can make your property taxes far more affordable, and you might be exempt from paying these taxes at all.
- Veteran Exemption: Military veterans and active-duty service members can qualify for property tax relief.
- Agricultural Exemption: If your property is used for agricultural purposes, your local government can offer property tax relief.
Can Your Deducted Property Taxes Be Returned?
Taxpayers can deduct property taxes on their tax returns, though the rules are different everywhere and change, so ensure to consult a tax professional before deducting property taxes on your tax return.
Conclusion
Purchasing property can be very rewarding both financially and emotionally. Learning about your property taxes and how they will be calculated may not be as emotionally fulfilling as seeing your family in a new home but is equally important when understanding your complete financial picture.