Property Taxes on my Mind
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Property taxes have been on my mind recently. In many places in the U.S., property taxes are paid in arrears. In other words, when you pay your taxes in the fall of 2006, you’re really paying for the first half of 2006. When you pay your taxes in the spring of 2007, you’re paying for the last half of 2006. And the tax bill that you get is based on the valuations established in the prior year. This wouldn’t normally be a big deal, since generally speaking property values don’t increase or decrease dramatically from year to year. They’re usually gradual increases and decreases that might result in small adjustments.
But think about what happened over the last year or so: in many places property values showed dramatic spikes. According to the county assessor, our property valuation increased by about fifty percent. Depending on the area, propositions may have passed as well that could result in increased taxes. The moral of the story? Be prepared for a potential property tax hike. And if you have your taxes escrowed, be prepared for a potential mortgage payment hike.
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Modified on December 3rd, 2006 - 8 Comments
Filed under: Taxes
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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December 6th, 2006 at 9:53 am
Paying property taxes in arrears, especially in escrow counties, can really get you if you are doing new construction. The escrow will often base taxes off the land value only. Suddenly the county auditor realizes there’s been an improvement (typically tripling or quadrupling the total assessed value in suburbia) there for a while–a whole year or more in a worst case scenario. Your escrow doesn’t come close to covering it so you either fork over a nice bundle up front, or pay nearly double property taxes in your mortgage for a year plus or minus.
The same thing can happen on a lesser scale due to things nickel mentions–increases in assessed value, school levies, et cetera. If you stay on top of events and adjust your escrow that can help avoid these issues, but that takes time.
December 6th, 2006 at 3:32 pm
That very thing happened to me with my new home. We actually had our escrow payments setup to account for the increase that would take affect, and we had the intention of depositing the escrow back in when they sent us a check. For some reason, that didn’t happen. Also, for some reason our homestead exemption and mortgage credit didn’t apply, so we were paying about 50% more in property taxes than we would have normally been.
So, since October 1st (three payments now), my mortgage payments have been about $500 more per month to makeup for the shortfall and what has been re-evaluated as the proper escrow payment. In reality, the amount we were paying into escrow was accurate to with five dollars for the entire year. We are petitioning our mortgage company to reduce our escrow payment by about $50 a month because our future property tax will be substantially less than they have been for 2006.
And I would say a $500 increase is no small increase for nearly anyone, but where I live, home prices are not outrageous, so my mortgage was only $870, including escrow for property taxes and homeowners insurance… so that is an astounding increase for us, percentage-wise, or anyway you look at it as far as I am concerned.
The interesting thing is that we really seem to be doing exactly the same with this $500 increase compared to before. So, it really shows that we could easily have $250 more per month to pay down debts and still have fun.
December 7th, 2006 at 4:53 am
Property taxes don’t seem so bad compared to the income tax I pay in Canada!
So far in the Vancouver area, my property taxes have not skyrocketed out of control.
What I really like about my property assessments is the fact they tend to come in lower than the actual property value. I am hoping this trend continues and that the local government workers have the sense to realize that if they hike the taxes on property that will hurt their own finances.
In reality they likely have been too buried in red tape to do anything in their jobs.
No matter what the reason, I am loving the fact that my property assessments so far have been lower than the true value. Now, all I can hope for is the federal and provincial governments get around to lower my income tax!
December 7th, 2006 at 5:36 am
I’m completely clueless about this – what is considered “high” for property tax? $6 on each $1,000?
December 7th, 2006 at 7:29 am
Jonathan, our property taxes have typically run about 1% of our the assessed value of our home, maybe a shade less. They’re actually calculated using a much more complex formula, but that’s about how it works out.
December 7th, 2006 at 4:23 pm
Jonathan,
I will be paying roughly $5 per $1000 on my property taxes. I am moving to a new home in January.
Every community is different, at least here in British Columbia Canada.
The community I currently live in, the cost is roughly $8 per $1000 of the assessed value.
One key factor in the cost is the physical size of the community compared to the population.
The town I live in has a population of 80,000 yet the geography of the town is quite large which means more money required to maintain roads etc.
Fewer people and more infrastructure costs account for higher property taxes.
Jonathan, if you are considering buying a new home near a particular city check the population vs the physical geography of the area. Typically a higher density population will result in lower taxes.
Just some stuff for you to think about, hope it helps
December 8th, 2006 at 4:28 pm
Sorry to rain on your parade, but all you homeowners enjoying homestead exemptions shouldn’t complain about the property taxes as much as you should be gloating over all that appreciation you’ve been enjoying, and about the fact that you’re probably paying a lot less than the rental prop owner down the block is paying.
Prop taxes are higher on rental prop than on owner-occ homes in most states. In Michigan, the school prop tax rate on rental prop is four times the rate on owner-occ primary residences. This extra tax amounted to more than $1,000 per year on the house in which I lived.
A friend (who is a county elected official) tells me that prop taxes in Michigan are capped (can increase no more than 5% per year or CPI, whichever is less) and calculated on some sort of three-year “rolling average” where large appreciation gains are muffled into much smaller prop tax increases. The prop tax cap has resulted in “taxable value” being 30-50% lower than assessed value for many homeowners.
If property taxes are so onerous, you can always sell your home and become a bitter renter like me!
August 30th, 2008 at 12:50 am
In 2005 our home was built as part of a neighborhood redevelopement project and the county never changed the assessed value of the property to reflect a home on the lot. We have been taxed on our land parcel only. Much of the new home development around us is tax abated. We wondered if perhaps our home had some abatements as well when our taxes did not increase. We just got some bills in the mail that reflects a re-evaluation of the home value with bills for the last 3 years… with interest (over $6,000). Can the county back tax us like this when they made such a gross error on their assessments? We intend to fight all the interest, however, do we have to pay all the back taxes from their re-assessments?