If you own real estate in the United States, you are no stranger to the concept of property taxes. Widely considered a necessity at the local and departmental level to maintain operations, these taxes most often relate to real estate. Although it is everyone's responsibility to pay their share of taxes, there are legal methods people can use to reduce their tax liability. Property taxes – and the associated assessment on which they are based – are no exception.
If you are considering an upcoming property assessment, you need to make sure it is as accurate as possible. To that end, we've rounded up some of the most common property tax exemptions that may apply to you.
- Depending on how often your state or municipality requires a tax assessment, the amount you pay may fluctuate over time.
- Like most taxes, there are certain scenarios in which the amount you owe can be reduced.
- Make sure you don't miss your deadline to appeal: contact local, county and state tax offices to find out when and how to reject your assessor's decisions.
What are property taxes?
Often considered the financial backbone of local government, property taxes are typically collected by your municipality, county government and often your local public school system. Once collected, they help support the needs of your community, such as emergency services, trash collection, and public libraries, to name a few.
Property taxes are what is called an ad valorem tax, which is considered in some circles to be a regressive tax, meaning it is based on the assessed value of a property. The amount you will pay in property taxes depends on several factors and varies by municipality. Additionally, some municipalities may levy taxes on assets other than real property, choosing to include other tangible personal property, such as vehicles or furniture.
What is a tax contribution?
In order to calculate how much a homeowner must pay in property taxes, you must first determine the assessed value of the property in question. Depending on where you live, this value may be determined by having a tax assessor physically visit the property to determine its value, although this is not always the case. Some jurisdictions assess properties based on market value, while others multiply the market value by an assessed rate to find the final assessed value.
Besides the exceptions, which we'll cover below, a property's tax bill depends on the local property tax rate, as well as the assessed value of the property. A property tax rate, also known as the mill rate, is multiplied by the final assessed value of the property to arrive at the property tax bill.
The frequency of these assessments also depends on where you live. In many places, such as Arizona, California, and West Virginia, tax assessments occur annually. However, in many other states, the frequency with which tax assessments occur can be up to 10 years, or left entirely to the discretion of the municipality. You need to make sure you know when your assessments will take place in order to properly request certain exemptions. Ideally, property tax assessments should occur on an annual basis so that you only pay the amount generally determined locally.
When can you appeal a tax assessment?
No one wants to pay more taxes than they should. If you believe your property taxes are too high, you can appeal your property tax bill. Typically, you will have a predetermined period of time after receiving your property assessment or tax bill in which you can argue that the assessor's decision was wrong.
Like almost every other aspect of the property tax conversation, the process by which you will appeal your property taxes varies from state to state, county to county, or even county. municipality to another. For example, property owners in Marion County, Oregon are required to file an appeal after receiving their tax bill, but before December 31st. Meanwhile, taxpayers in Wake County, North Carolina, have 30 days after receiving their first notice of value to appeal.
Keep in mind that you will not get an immediate response to your call. It will take time to complete the proper paperwork and pay the associated fees before you even begin to explain why you think your property is actually worth less than the appraised value. Again, how this process looks will be determined by where you live. Even then, it may take a while to receive a response from the agency that handles your property assessments, as it is likely being criticized by other assessment calls at the same time.
Property Tax Exemptions Can Help Reduce Your Taxes
Property taxes can be a costly annual expense. Although a small reduction in your assessment might only save you a few hundred dollars over the course of a year, if you can argue that your property was grossly overvalued, you could easily end up keeping thousands of dollars in your pocket.
While you can't argue about the tax rate, another way to reduce your property taxes is to seek out and defend certain exemptions. Although some exemptions, such as those granted to religious or governmental organizations, are out of reach for the average property owner, the following exemptions may meet your needs and help reduce your property tax bill.
Property tax exemptions for seniors
In many states, home and property owners over a certain age can qualify for a property tax exemption. Specific details regarding the age limit and other eligibility requirements, such as Social Security status, may also play a role. Additionally, there may be additional requirements or other criteria. This type of exemption could save the lives of many older adults, as in 2019, 4.9 million Americans aged 65 and older lived in poverty.
Property Tax Exemptions for Veterans
For those who have served our country in the military, many states and municipalities offer property tax exemptions. Whether or not the exemption is available only to disabled veterans or anyone who served in the armed forces depends on the state. The amount this exemption can deduct from your overall property tax bill also depends on where you live. For example, California offered a base exemption amount of $134,706 in 2018. Other states are proposing to eliminate property taxes altogether for former members of the armed forces.
If you have a primary residence and would like to reduce the overall property tax bill associated with that residence, you may be able to request a property tax exemption. Depending on where you live, you may not even need to be part of a certain subset of citizens to be eligible, as some states actually offer the exemption to every homeowner. However, most states often require you to be:
- A disabled person
- An old person
- A veteran
- A law enforcement official or first responder with a disability
Some property exemptions are based on a flat reduction in the entire assessed value of your home. Other cases of property tax exemption on homesteads are calculated based on a percentage. In the first structure, low-value homes receive a larger discount, while the second is a better choice for people with high-value properties.
Exemptions for home renovations
Although most renovations can increase your property taxes thanks to their higher value, some states offer exemptions for renovations up to a certain amount. Depending on where your property is located, some areas of the country offer to waive property taxes up to a certain amount of home improvements. In these cases, local governments will set the limit on how much you can invest in a property before resuming paying the full amount of tax.
Renewable energy exemptions
If you're looking to contribute to the global campaign for more green energy and less waste, you may be able to take advantage of additional property tax discounts. Installing things like solar panels on your roof could not only lower your energy bill, but also earn you a property tax incentive. In some cases, this is done by reducing your property assessment by the value of the improvements you added to the home. Although solar panels are generally a more common method of generating renewable energy across the country, some states may also provide exemptions for geothermal heat pumps and wind power.
To see if your state and municipality offer such an exemption, you can search the Public Incentives for Renewable Energy and Efficiency Database for potential benefits.
Exemptions for people with disabilities
Homeowners living with a disability may be eligible for a property tax exemption. The relief your disability will give you on property taxes depends on where you live. In some cases, you will need to provide a legal affidavit to explain your disability. However, if you have difficulty getting around and live on a single fixed income, reducing your property taxes could be a significant financial help.