Posted by Abundant Wealth Planning LLC

Property Tax Assessment: Understanding What It Is & What It Means

Property Tax Assessment: Understanding What It Is & What It Means

Property taxes are a recurring expense that many homeowners need to be prepared for. To determine how much you owe, the local authorities will conduct a property tax assessment.

Here's what you need to know about property tax assessments:

What is a tax assessment?

The property tax assessment helps the county or local authorities determine the value of your property, also known as the assessed value. The property's appraised value is then multiplied by the property tax rate for your area to calculate the property tax.

The appraised value and assessed value of a property may seem similar, but there is one notable difference between the two:

  • Appraised Value: After appraising the home, the appraiser will give their opinion on the home's value. This is the appraised value and helps lenders determine how much they will allow a buyer to borrow to purchase the property.

  • Assessed Value: The worth of your home is determined by your local authorities and used to calculate property taxes.

What is the difference between property tax and tax assessment?

Property taxes produce meaningful revenue for local governments. To determine property tax, the local authorities will conduct a tax assessment.

Here's a quick summary of the difference between tax assessments and property taxes:

  • Property Tax: how much you pay based on the appraised value of your property and the property tax rate.

  • Tax Estimate: An appraisal of your property, usually done by a county or city appraiser, to determine the property's appraised value.

A part of the monthly mortgage payment is deposited into an escrow account to cover property taxes and insurance premiums. Once the property tax is due for that year, the lender will use the funds in your escrow account to pay the bill.

Tip: Property taxes can increase if you increase the tax rate or the appraised value of your property.

On the other hand, if the appraised value or the property tax rate decreases while the other increases, it is possible that in the end, you will pay less tax.

Some states have tax limits for properties that protect residents from drastic increases in property values. Find out how property taxes are implemented in your area and stay up to date with the latest changes.

What determines the property tax?

Property taxes change based on policies set by county, city, and state. In addition, the amount payable may vary depending on the assessment of the property tax.

Some states update their assessments annually, while others may have a different schedule every three years. Consult the tax authorities for the frequency of assessments.

Here are the three factors that determine the property tax:

  • The estimated value of your property: An assessor hired by the local government will determine the appraised value of your home. When appraising your property, the assessor can see which neighboring homes have been sold or appraised.

  • Exemptions to which you are entitled: Some tax jurisdictions offer exemptions for certain parts of your property. For instance, Idaho offers a homeowner's exemption if you use the home as your primary residence, and up to $100,000 (one hundred thousand dollars) of the home's assessed value may be excluded from the calculation. Other exemptions may apply, such as the elderly or disabled veterans.

  • Your property tax rate: Finally, the local tax authority sets the property tax rate, usually the county.

How property taxes are assessed

The assessment of the property tax is carried out according to the schedule of the tax administration. Some assessors need to update home values before the first year, while others may have a two or three-year cycle and notify homeowners at different times of the year.

Three methods are used to assess property taxes:

  • Income Method: Used primarily for commercial or business property, this method analyzes the amount of income that can be expected if the property is rented. The consultant will also take into account items such as operating and insurance costs, as well as maintenance costs and financing conditions. The potential income and expenses are then broken down together to determine the property's value.

  • Replacement Method: often referred to as the cost approach, this tax assessment takes into account the cost of rebuilding a property based on current materials and the labor market. Depreciation can be added, and the cost of the land should also be taken into account.

  • The sales comparison method: Also called the market approach, the sales comparison method analyzes recent sale prices of similar properties in your area. Your home's features and improvements are compared to what's included in recently sold homes, and their value is adjusted accordingly. This is a commonly used method for valuing residential properties.

How to appeal the property tax assessment

If you are not satisfied with the property tax assessment, you can appeal. Make sure you read the review letter for the correct steps.

You should also:

  • Please note any inaccuracies in ownership, including the number of parts or upgrades that may be present.

  • Collect documentation, which may include real estate agent compilations, as well as information about your property.

  • Ensure you follow the exact procedures for submitting documentation on time and presenting your case.

Depending on where you live, the cost of compensation may outweigh the property tax savings. In addition, it is crucial to ask yourself whether it is worth investing the time and energy to appeal.

Note: Your appeal can only change the assessed value of your home, not the property tax rate. If the value of the house is reassessed to a lower value, the property tax will decrease.

On the other hand, your appeal may result in a higher assessment, which may result in a higher tax collection.

Another way to cut home costs

While lowering your taxes can help save you money, there are other ways to lower your monthly mortgage payments. Mortgage refinancing can be easier to save at home each year because you can change your loan terms and lock in a lower interest rate.



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