Door recently conducted a survey to figure out what homeowners wish they had known before buying their first house. The topic of property taxes kept coming up, how they are calculated, how much you actually have to pay and why they often change.
Property taxes differ by year and location so there is no one, straightforward explanation. However, the concept of property taxes is relatively simple. These taxes are set each year by local governments to help cover community costs such as education, public safety, utilities, highways, hospitals, etc.
The national average for property taxes falls in between 1% and 2%. If the neighborhood you live in is preparing to build a new elementary school or restore a major highway, the property tax will likely be on the higher side of that average. If you haven’t yet purchased a home and are wondering what the property tax will be, call the local collector’s office or ask your Door agent for help. They should be able to give you an estimate although the tax rate frequently changes so it may not be completely accurate. Looking around your neighborhood and following local news is a good way to predict what the property tax might look like for that year.
How much money you will actually have to pay depends on the assessed value of your home. This “taxable value” depends on your home’s land, structure and improvements. Everything about your home is taken into account from pool access to any recently made restorations. How often houses are reassessed depends on where you live but the government is usually fair in ensuring the most accurate values. The assessed value is then multiplied by the annual (or semi annual) property tax to determine how much you owe. For example, if the property tax in your area is 1.6% and your home is valued at $500,000, you will owe $8,000.
Another detail of property taxes that many people have trouble understanding is that of the “mill levy” or “millage tax”. This is nothing more than another way to express the property tax rate. A local government decides how much money they will need for that year and then distributes taxes fairly in terms of the “millage tax rate”. One mill is equal to one-tenth of a cent. For example, if the millage rate is set at 11.5 mills, you will be paying 1.15% of the assessed value of your home. If your home is valued at $100,000, you will pay $1,150 in property taxes.
Property taxes are something that all homeowners have to endure. Many people make the mistake of not researching local tax rates and are then blindsided with a huge bill at the end of the year. While the amount owed is usually fair, it is beneficial to know exactly how they are calculated and distributed to get an idea of what the total cost of ownership will be.
Still confused about how a property tax works? Get in touch with a Door agent to answer any further questions!
To find more tips for first time homebuyers, click here.
(Image via 401(K) 2012, flickr)