Paying property taxes is an unavoidable—and expensive—part of homeownership. Fortunately, there are steps you can take to lower your real estate taxes.
Figure out how your property taxes are computed
Look at your property tax bill to see which government entity regulates your local property taxes. For example, it may be the county, city, parish, or state. Once you know what agency it is, visit its website and read the rules. These will explain how your taxes are computed and how you can go about disputing your tax bill, if need be. Each locality’s property tax assessor has a procedure for filing a request to reduce or re-evaluate your property taxes.
Have your property appraised
Generally, property taxes are based on property values. So, if you bought your home five or more years ago, it’s quite possible that the value of your property has gone down. If this is the case and you want dispute your bill, have your property re-appraised by a qualified appraiser. Make sure the appraiser meets the standards of the tax-assessing agency. Otherwise, you’ll be wasting your money because the agency may not accept the appraisal.
Depending on the size of the agency’s staff and how many people are filing claims, it can take from a month to a year to have your request for a lower property tax bill approved. Often, when it takes that long, the revaluation will be effective based either when you first filed the application or when the property values declined.
Speaking of re-appraising, note that this process will not result in a permanent reduction. After you’ve reduced your taxes, they will start to go up again as your appraised value rises.
If you live in California, remember Proposition 13
California has a unique situation. Due to 1978’s Proposition 13, the various county tax assessors must base property taxes on 1 percent of the last sale price—plus a small increase for inflation and any special assessments. As long as the property isn’t sold, property tax increases are limited to no more than 2 percent per year.
When transferring the title of the property to family members, the home retains the Proposition 13 value for property tax purposes. In fact, in certain counties, senior citizens buying a home can transfer the Proposition 13 value after selling their previous home.
Can you reduce your property taxes below the Proposition 13 level if your home declined in value? Yes, but the reduced assessed value is only temporary. It will increase along with market values—but only until it reaches the Proposition 13 cap.
Valerie Faltas, property tax expert and certified property tax appraiser, has made a career out of reducing California property taxes on homes whose values have declined. She uses a simple trick: A homeowner passes title to another entity—perhaps a living trust—and doesn’t file the forms to retain the Proposition 13 value. The new entity’s property taxes will be based on the current market value and, therefore, will be lower than the Proposition 13 tax value.
How else can you reduce your property taxes? Pay attention in local elections. Understand which plans will be funded via your property taxes, and don’t vote for them if the plans don’t make sense to you.
Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.