How to Pay Lower Property Taxes


If you look really, really hard, you might find a silver lining in the darkest of clouds. When it comes to the gut-churning drop in home prices, the silver lining is the chance to reduce your property taxes. Maybe.

In most parts of the country, property taxes are used to support schools and local and county government. Since property, or real estate, tax is based on the property’s value multiplied by the tax rate, the tax should go down if the property’s value falls.

But it probably won’t go down automatically. Unless the home has sold recently, taxes are typically based on the latest assessment, and it’s common for years to go by between assessments. Tax authorities aren’t eager to reduce tax bills, so the homeowner has to take the initiative by filing an appeal.

Just because your property has lost 20% or 30% of its value in the past couple of years doesn’t guarantee an appeal will win you a tax cut. If your tax is based on an appraisal that’s seven or eight years out of date,  your property could be worth more than its appraised value despite a recent drop. In that case, drawing the tax folks’ attention by filing an appeal could backfire.

Instead of paying these taxes directly when they are due, once or twice a year, many people include part of the tax payment in their mortgage payment. Money builds up in an escrow account and the mortgage servicing company pays the tax. It’s easy, then, to lose track of how much you are paying, but it could well be thousands and thousands of dollars a year.

The first step is to find out how much. The annual statement from your mortgage company will say, but if you can dig up the actual tax bill it should also state your home’s appraised value.

Don’t take this figure at face value. For a variety of reasons, many jurisdictions appraise properties at some portion of their actual fair market value. You may see a term like Common Level Ratio, or one using the word “equalization.” These represent formulas used to adjust properties’ values for appreciation since the last appraisal.

In theory, this should account for falling property values as well as rising ones, but a countywide formula may not set the right value for any specific property, and there may be mistakes.

If the tax bill doesn’t include a figure for current fair market value, you may have to ask county, town or school tax offices for help converting the number to you see to fair market value so you can judge whether the property is being overvalued.

Next, look at recent sales in your neighborhood for a sense of current prices. Don’t use any sales more then three or four months old. This story has tips on figuring a value. Also take a look at current prices asked by big home builders like Toll Brothers (Stock Quote: TOL) and Hovnanian (Stock Quote: HOV). These outfits are very sophisticated at pricing.

All taxing authorities have procedures for appealing appraisals. Typically, you file a form, pay a fee and perhaps appear in person at a hearing. You’ll have to supply evidence, typically a professional appraisal that could cost several hundred dollars. It also could pay to hire a lawyer who specializes in real estate.

In the Yellow Pages, look at “Lawyers – Real Estate,” or type “real estate lawyers” and your town or county into your search engine.  Look up local “real estate appraisers” the same way, or try this site. Your appraiser should be able to recommend a lawyer accustomed to dealing with your local tax people.

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