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Tip- Understanding Your Real Estate Tax Assessment
Tip of the Month
October 2004
Tip- Understanding Your Real Estate Tax Assessment
If you own property in the U.S., you pay taxes on it. Tax rates vary from state to state, and from neighborhood to neighborhood, but real estate taxes are an inescapable reality for homeowners. The tax, which is calculated by the local tax assessor, is used to pay for essential municipal services like schools, libraries, and the police force, and, in some areas, is the major source of revenue for the local town.
How does your municipality determine how much you owe?
Your real estate taxes almost always will be based on an assessment of the market value of your home. The assessment may be an estimate of your homeâs market value or a percentage of this value, but whatever method used, the local tax assessor will apply the same assessment formula consistently throughout your community. Assessments are reviewed and adjusted annually, and notices of any changes are mailed to you. It makes good sense to pay attention if you receive a change notice, and to look around your neighborhood to find out what the selling prices are for homes like yours in term of size, style and features. If your assessment is rising, your neighborhood may be on an upswing, and homes in it may see increases in market values...or, perhaps, the assessor is overly optimistic in his estimate on your property. Either way, the annual appraisal, and any changes in your homeâs assessed valuation, gives you a good idea of how your investment in your home is faring.
Why is my assessment different from my friendâs? He lives on the same street.
Variations do occur. It is always a good idea to contact the tax assessor to see if there has been a mistake or if the assessor has miscalculated your homeâs value. The ideal is for your houseâs assessed value to be as close as possible to its true market price. If it is too high, youâll pay more in taxes. If it is too low, it could hurt you if you put the house on the market. Buyers tend to base their offers on the tax assessorâs valuation.
If I feel the assessment is too high, what can I do?
Appeal methods vary from municipality to municipality. In most instances, you begin the appeal process by contacting the tax assessor to find out if a simple error is involved. If not, the assessorâs office can advise you on how to appeal your assessment. Almost certainly, you will need to back your complaint up with data - an independent appraisal of your home or a comparative market analysis that provides information on documented sales of houses like yours in the same area.
Finally, before launching an effort to contest your propertyâs tax assessment, make sure the cost of obtaining the property data needed to contest the value assessment wonât exceed any potential tax savings you might gain.
How does your municipality determine how much you owe?
Your real estate taxes almost always will be based on an assessment of the market value of your home. The assessment may be an estimate of your homeâs market value or a percentage of this value, but whatever method used, the local tax assessor will apply the same assessment formula consistently throughout your community. Assessments are reviewed and adjusted annually, and notices of any changes are mailed to you. It makes good sense to pay attention if you receive a change notice, and to look around your neighborhood to find out what the selling prices are for homes like yours in term of size, style and features. If your assessment is rising, your neighborhood may be on an upswing, and homes in it may see increases in market values...or, perhaps, the assessor is overly optimistic in his estimate on your property. Either way, the annual appraisal, and any changes in your homeâs assessed valuation, gives you a good idea of how your investment in your home is faring.
Why is my assessment different from my friendâs? He lives on the same street.
Variations do occur. It is always a good idea to contact the tax assessor to see if there has been a mistake or if the assessor has miscalculated your homeâs value. The ideal is for your houseâs assessed value to be as close as possible to its true market price. If it is too high, youâll pay more in taxes. If it is too low, it could hurt you if you put the house on the market. Buyers tend to base their offers on the tax assessorâs valuation.
If I feel the assessment is too high, what can I do?
Appeal methods vary from municipality to municipality. In most instances, you begin the appeal process by contacting the tax assessor to find out if a simple error is involved. If not, the assessorâs office can advise you on how to appeal your assessment. Almost certainly, you will need to back your complaint up with data - an independent appraisal of your home or a comparative market analysis that provides information on documented sales of houses like yours in the same area.
Finally, before launching an effort to contest your propertyâs tax assessment, make sure the cost of obtaining the property data needed to contest the value assessment wonât exceed any potential tax savings you might gain.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.
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