Property taxes are typically your largest homeownership expense after paying your mortgage. Any way to save on your property taxes can be a big win for your budget!
Home ownership can be a true joy. The thought of holding your very own keys in your hands and being able to point and say “That’s my house”.
That’s until it’s time to pay property taxes. The average property tax in California is $4,694 per year whereas in places like New Jersey and Connecticut, it ranges from $6,400-$9,300 per year. This is undoubtedly not one of the joys of home ownership.
Now of course, we all want to be great citizens and do our due diligence to help with infrastructure and projects that benefit our communities. However, there is no reason to be overpaying your property taxes.
There are ways to legally reduce your property tax bill - let's dive in.
How Property Taxes Work
In simple terms, property taxes are local taxes paid on real estate you own, including both the land and buildings on the land. The amount of property tax you owe is typically based on the assessed value of the property (i.e. what the property is worth).
Some states, notably California, assess your property taxes on the sales price you purchased the property for. For example, if you buy a home for $500,000, your property taxes will be roughly 1.2% of the value, or $6,000 per year. In California, they don't re-assess your property value unless you substantially change your property. This is how some amazing beachfront property pays very little in taxes.
However, in other states, they may re-assess your property value every year, or every-other year. In Texas, the state law is that every property must be reassessed AT LEAST every three years. The result is the amount that you pay in property taxes may change based on the new assessed value.
If you want to dispute your property tax bill, it almost always is about disputing the value of your property. Here's how to do that.
Contact Your Local/County Tax Office
A simple Google search for “local or county tax office” and the name of your city will give you the list of appropriate offices in your local area.
Once you have collected that information, call or visit one of these offices and ask them about what your options are when it comes to reducing your property taxes especially if you believe you might be paying too much.
This truly is a situation of “if you never ask you will never know”. Once you ascertain all the options available to you, you can then go ahead to implement the ones that will save you the most money.
Note: Local government offices are notoriously underfunded and understaffed which means that if you choose to send an e-mail it could get lost. Calling or booking a physical appointment is more likely to yield you productive results.
Find Out The Current Value Of Your Property
For most people, the #1 driver of their property tax is the value of their home. Other than a few small "flat taxes", the largest portion of property taxes is a percentage of the value of the home - say 1%.
It's important to note what the county or city thinks your property value is, and what you think the value of your property is. Get a copy of your home’s current assessment record from the County Assessor’s Office. This will potentially give you further grounds to save on your taxes.
Being in the know of how your local government assesses properties in your locality is extremely useful as well. For instance, in some states property tax is based on a capped percentage on the purchase price of your home while others have been known to raise or reduce your tax bill based on fluctuating market prices.
Finding out exactly how that number is calculated will help you determine if you are paying the right rate or not.
Another way to find out the true value of your property is if you've recently had an appraisal done. For example, maybe you recently refinanced your home and you have an updated appraisal from your bank. This can be a great tool in helping you understand the current value of your property.
Appeal Your Property Taxes Or Property Assessment
It is likely that this might be one of the options that will be presented to you by the local/county tax office.
The sad truth is that, sometimes the County Assessor's Office, the people who appraise and place a value on homes and properties, are woefully understaffed and yet are responsible for the whole county.
Being busy like that also means that the probability for errors to have been made when the property was first appraised is very high. It is also possible that a neighbor of yours who has a much bigger/more expensive property than yours may even be paying taxes lower than yours as a result. This is where you can begin to appeal your current tax bill.
Every local tax office will handle tax appeals differently. In general, it will work along the following lines.
- File an official appeal form with your local/county tax office
- Get in touch with the County Assessor’s Office and go over the value of your home together to ensure your home was assessed correctly and that there are no errors
- An appraiser may be sent to your home to come and re-appraise your property taking similar properties around you into consideration. You can exercise your power here by walking the property with the appraiser to make sure they get everything right.
- If further evidence is needed, you might have to attend a hearing of your case to defend your case
- If it does happen that your home was incorrectly appraised and as a result you are paying higher taxes, this information will be communicated to the County Assessor’s Office and steps to reduce how much you are paying on property taxes can be processed from there. If you are owed a refund as a result of over-paying, you will receive that from your local/county tax office as well.
Research What Similar Properties and Your Neighbors Are Paying
You don’t need to ask your neighbors what they are paying for property tax. You can find property tax information for your home and properties similar to yours using information from the county tax office.
Make sure you compare based on parameters like:
- Size
- Bedroom Count
- Bathroom Count
- Garage/No Garage
- The year the home was built
- Acreage that surrounds the home
- Premium views (e.g of the ocean, a lake, mountains etc)
If your research shows that you are paying considerably more than properties around you that have similar characteristics, you can arm yourself with this knowledge to further push your appeal.
You can also use real estate websites like Zillow and Redfin to find out what homes similar to yours have sold for in the last 30-90 days and the taxes they are paying to gain a good idea of what you should be paying.
Find Out If Your Are Eligible For A Tax Break
States and local governments have different property tax breaks if you are a senior citizen, a veteran, active military , disabled or experiencing severe financial hardship. You may have to file the necessary paperwork to prove that you fall into one of these categories but it is worth it.
Many locations also a homeowners or homestead exemption. This means that if you live at the property as your primary residence, you get a small tax break. However, it usually requires that you file a specific form. Make sure you file this form if you haven't.
Other states and local governments will also give you a tax break if you use alternative sources of energy for your home such as solar power.
There Are Services To Help
In some states and locations there are services that can help you try to get your property taxes lowered. They basically do all the steps above for you - but for a fee. Sometimes the fee is a flat-rate service whether or not they can save you any money. Other times you'll pay the company a percentage of the savings when they are successfully able to lower your property taxes.
One service that has been leveraging technology to help is Ownwell. This company will let you know up front if they think they can save you money, and they only charge a percentage if they are successful. They operate in several states as well. Check out our Ownwell review here.
Some Key Points To Remember
These are all the steps you can take to lower your property tax bill and pay the taxes you have to pay and nothing more than that. I personally have been able to use an appraisal from refinancing my home to lower my property tax bill. I simply filed an appeal with my county, sent them my new appraisal, and they agreed. For about 30 minutes of work, I was able to save a few hundred dollars.
However, if you don't have something recent, it could be useful to use a service.
While you take these steps it is important to remember that you will still need to pay your taxes for the current year while you research and appeal your case.
It is also important to note that if you do decide to appeal, it could take 1-2 years for that property tax bill to come to its’ correct level.
We do think it is worth the fight regardless because it will save you from 10, 20 or even 30 years of overpaying in taxes when you could have put the money towards investments.
Have you ever been able to successfully lower your property taxes?
Editor: Colin Graves Reviewed by: Chris Muller
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.