What is a Property Tax Assessment?
What is a Property Tax Assessment?
A property appraisal is an estimate of the value of your home or investment property in your local market. This estimate is multiplied by the tax rate set for your specific jurisdiction to determine your annual property tax bill. This rate is sometimes referred to as mill rate, mill levy, or mill rate.
In some cases, homeowners may be eligible for a property tax exemption, which could reduce the assessed value of the property and therefore your tax bill. The family exemption is an example. In my area, the homestead exemption is $25,000. Thus, a qualifying homeowner with a property valued at $200,000 would only be taxed for $175,000.
Many jurisdictions also offer exemptions for veterans, exemptions for people age 65 or older, and exemptions for disabled homeowners. You will want to check with your local tax authority to see what exemptions are available.
How are property assessments determined?
Several methods are used to determine property values. These include the comparable sales method, the replacement cost method and the income method, which we explain below.
The comparable sales method
One of the most common ways to determine the value of a property is through comparable sales. With this strategy, the real estate appraiser uses recent comparable property sales – homes in the same neighborhood that are the same age, size, condition, etc. – to determine the price at which the house would likely sell in the current market (its current market assess). This strategy is similar to an appraisal, which your lender likely performed when you originally purchased the property.
The replacement cost method
This valuation approach bases the value of a property on replacement cost. It takes into account the age of the property, its condition, depreciation, local construction costs, etc. It’s similar to how an insurance company determines the amount of coverage you need for your home.
The income method
This is generally used for businesses and commercial properties, although it can be used on residential properties in some jurisdictions. For commercial buildings, it generally uses the income generated by the business as the value of the building (after taking into account taxes, operating costs, etc.). In the case of a business that is not yet in operation or a residential building, the taxing jurisdiction may use the potential rental income of the property as the value instead.
Property Tax Assessment Schedule
Exactly when the value of your property will be assessed depends on your taxing authority. In some jurisdictions, this is done annually. In others, it may be every five years or only when a property changes hands.
Regardless of the date of your assessment, you will still have to pay property taxes annually. The timing of these bills also varies. Here in Texas, we receive our tax bills at the end of the year, with the balance due by February 1st. In some areas, homeowners may receive multiple tax bills per year, allowing them to pay their taxes in installments.
Contest your property assessment
If you think your property tax assessment is wrong (and your tax bill is too high), there are options. First, you can find out about exemptions in your area if you qualify. These can often reduce your taxable value by the thousands, reducing your tax bill.
Additionally, you can also dispute or appeal the assessed value of your home. The exact process for this again varies by location, but generally requires filling out a form, offering some form of proof of your home’s lower value and, in some cases, appearing before a commission. examination for a hearing.
Here are some examples of evidence you may be able to use to reduce the assessed value of your property:
- A closing statement if you recently purchased the home for less than its current appraised value. Make sure it includes a date and the total purchase price.
- Photographs of the property showing that it needs repairs or is in poor condition. Things like foundation issues, roof issues, and other expensive repairs can help here.
- Recent comparable real estate sales in the region. Sales must be for properties similar in age, condition and size to yours. You can ask a local realtor to remove them for you if you don’t know where to start.
- The contractor’s estimates for any repairs or updates the home might need. The higher the estimates, the better.
You should also ask a local agent to give you an estimate of your assessed value should be rated at. This can be good information to have on hand if you have to appear before a review board.
A word of warning here: many law firms and tax professionals advertise property tax litigation services. In most cases, paying for these services is not worth it. Not only is disputing the value of your property with your local tax authority free, but there is no guarantee that it will be successful. Paying extra money for a professional might just lead to more financial loss.
The bottom line
If you own a commercial or residential property, a tax assessment and tax bill are in your future. Be sure to check with your local tax authority to find out when and how these will be determined. This can help you plan ahead (and budget for) these costs.