Property taxes are calculated as a percentage of the purchase price and vary from state to state and often between counties. Some states have complicated formulas to arrive at the final property tax, but it still usually boils down to a percent of the property value. The county assessor’s website can give you the exact amount.
Taxes are usually re-assessed annually or when a major improvement that requires a building permit is issued, such as for a room addition or putting in a pool.
Here is an example: If the purchase price of the property is $150,000 and the tax rate for the area is 1%, the annual property tax would be $1,500.00.
How often are property taxes paid? The county where you purchase the property is normally the collector of property taxes and they usually bill twice a year, half in April and the other half in December. Property taxes are used to cover things like police, fire, schools, parks, roads and city administrative costs. If there are additional school bonds or other infrastructure taxes attached to the property, they will be billed together with the property taxes. Property taxes left unpaid can cause serious penalties and liens to be placed against your property. It is important to you and the mortgage company not to have a tax lien placed on the property as they are given a priority position over all other liens. Liens can lead to foreclosure if not paid.
Appealing your property tax: If you feel that your property taxes are too high, perhaps because of a decrease in the value of your home, you may appeal to the county to lower your property tax. The appeal process will vary by county but the forms or information on how to appeal will be available on the county website or the assessor’s office. It is usually not too difficult to apply for and is usually granted if your claim can be substantiated.
How impound accounts work: Most mortgage lenders will offer to set up a free impound account to pay the property taxes for you when they are due. They do this by collecting 1/12th of your estimated property tax each month when you pay your mortgage and distributing it when due to the county. Since it simplifies bookkeeping for you, and there is no extra charge, we recommend you take advantage of this service. The same can be done with your insurance payments. It helps you to streamline your bill paying.
Which states have the highest/ lowest property taxes? The 3 lowest property tax states are: Alabama, West Virginia, and Louisiana. Low property tax states often have lower population densities that require fewer governmental services.
The states with the highest property tax are: New Jersey, New Hampshire, Connecticut and New York. Higher population densities require more county and city services, such as police, fire, schools, street repair, etc.
Pros & Cons of California Prop 13: As originally drafted by Howard Jarvis in 1978, Prop 13 was designed to assist the elderly on fixed retirement incomes to be able to afford to stay in their homes without fearing property taxes would escalate and force them out. The property tax rate was fixed at 1% of the purchase price with an inflation cap of 2% per year. The other part of Prop 13 requires a two-thirds majority vote in both legislative houses for any state tax rate increases. Local governments have gotten around Prop 13 to some extent by adding Mello-Roos infrastructure liens and/ or school bond liens to the property tax bills. Since most homes in California are re-sold after about 7 years, the revenue loss to the state and counties has been minimal.
It is recommended that you always research the property taxes for the city and county where you are buying. The tax the seller has been paying may or may not be the tax you will pay after purchase. Check with the county assessor’s office prior to purchase. Your agent or title company may be able to do this for you.