Property taxes are an unspoken burden of homeownership. Even after you pay off your mortgage, the tax bills keep coming and they tend to rise steadily over time. Here are strategies to lower your property tax bill and possibly save thousands of dollars over the decades to come.
Research property tax exemptions
Some states and municipalities lower the tax burden for seniors, veterans, people with certain disabilities, agriculture properties, spouses of deceased, or homestead. For California homeowners, this list outlines general qualifying factors of each exemption.
Did you know that if you’d like to install solar panels in California, the Active Solar Energy System Property Tax Exclusion doesn’t raise homeowners’ property taxes?
Understand your property tax bill
If you receive an exorbitant property tax bill, it’s worth reviewing the statement closely to understand how the figure was determined. Property taxes are calculated using two very important figures: the tax rate and the current market value of your property.
Your property tax rate is set by state and local law. Research your municipality and compare your tax rate with those of other counties and states using this calculator. Theoretically, the revenue generated from your property taxes is used to fund local projects and services such as fire departments, law enforcement, local public recreation, and education. Local legislation may impact your tax strategy, such as Proposition 19 which passed in California last year.
The market value of your property is determined by an assessor, who usually makes the calculations using automated software and never visits your home. You can research this information by requesting a copy of your property assessment from your local assessor’s office or your town hall. Verify information such as the lot size, the precise dimensions of the rooms, or notations about any improvements made to the house. Review the report closely for any errors. Next, compare homes on your block and research neighborhood trends.
Your home should be valued at approximately the same as other homes in your neighborhood.
Do not make any major home improvements
A deck, a pool, a large shed, or any other permanent fixture added to your home is presumed to increase its value. An increase in your home’s value will lead to a rise in property taxes. If your goal is to save on your property taxes, save the new kitchen cabinets for next year. Try not to make any cosmetic alternations to the home, such as stainless steel appliances, until after the assessor finishes the evaluation.
Schedule an appointment with an assessor
Allow them to enter your home. Point out the good points as well as the deficiencies to ensure the fairest possible valuation for your home. If you plan to live in your home for a long time, a lower valuation could save you thousands of dollars over the years. If you do not agree with the assessment, consider hiring an independent appraiser and file an appeal with the help of a lawyer. If the board agrees with your appeal, you may lower the assessment on your home and effectively your bill, but not your tax rate.
Advanced property tax strategies
You can prepay (by December 31) property taxes that relate to 2022 (the taxes must be assessed in 2021) but that are due in 2022, and deduct the payment on your return for this year. But you generally can’t prepay property taxes that relate to 2022 (they must be assessed in 2021) and deduct the payment on this year’s return. Schedule an appointment to help you determine your optimal year-end tax planning strategies.Not sure whether you should prepay your property tax bill or what other deductions you might be able to accelerate into 2021 (or should consider deferring to 2022)?