Property taxes are taxes that are assessed on any property that an individual owns. In many states, real property, also commonly referred to as real estate, is taxed on an annual or quarterly basis. However, many states tax personal property, such as a person’s motor vehicle. Personal property is typically any moveable property, whereas real property is not moveable.
The real property taxes an individual must pay depends on their state. Although each state has a different tax rate for real property, taxes are generally based on a percentage of the appraisal of the property in question or the property’s assessed value.
As far as who determines the value of a property or performs appraisals or assessments of real property, it is most common for local tax officials to be the group that makes the determination and applies the tax rate. In most jurisdictions, an individual’s real property tax bill may include the following taxes:
- County or state taxes;
- City or town taxes; and
- School or education taxes.
Which States Tax Real Property?
It is important to note that all states tax real property in some manner as an effort to pay for a variety of local community infrastructure and necessary resources. In fact, according to the United States Census Bureau, the average American household pays around $2,500 annually for their homes.
Examples of common real property that is subject to state real property tax include, but are not limited to:
- An individual’s house;
- The land attached to farms and ranches, including the house or buildings attached to it;
- Businesses such as restaurants or shopping centers; or
- Apartment or other multi-unit living structures.
Once again, the amount of property tax will depend on the appraised fair market value of the property subject to the real property tax. Additionally, the party that owes the tax will depend on the property’s ownership.
What Is Fair Market Value? How Is It Different From The Assessed Value?
Importantly, the assessed value of an individual’s property, as determined by the tax office, is not the same as the fair market value of their property. The fair market value of a piece of real property is the artificial price that a court will determine that some piece of real estate, or interest therein, is worth. Fair market value calculates what a buyer would pay for a piece of real property if listed on the open market.
However, in terms of real property taxes, the property’s value is not necessarily based on the property’s fair market value. Instead, the property’s value for tax purposes is the assessed value of the property. This means that the value that is assigned by the town or county in which the property is located is the value used for calculating real property taxes. Although the two figures might be the same in some areas, it is more common that the assessed value of a piece of real property will be lower than the property’s fair market value.
As far as calculating the property’s assessed value, the assessed value is calculated by considering comparable home sales and inspections in the nearby area. The assessed value is not intended to be a standard for determining the property’s worth on the open real estate market under market conditions.
What if the Government Values Property Incorrectly?
If property owners believe the government has incorrectly valued their property when calculating their real property taxes, they should contest their property’s valuation. Each state will have its own different process for contesting real property tax values. However, in general, most states will offer a hearing in front of the committee from the entity responsible for appraisals. The committee or hearing body will decide on the contest by the property owner and rule on whether or not the original appraisal value of the property was correct.
While contesting the valuation of a piece of real property at the hearing, the property owner will need to present evidence explaining why they believe the government has incorrectly valued their property for tax purposes. Examples of evidence that may be used to contest the valuation may include the following:
- Details about the age, size, and condition of the house or buildings present on the property;
- The acreage of the surrounding land attached to the property; or
- A comparison of the owner’s home to similar properties in the area.
If other similar properties in the property owner’s area pay lower tax bills, this could prove to the committee that their property was improperly valued. If the property owner does compare their home to others in your area, they must ensure that the property they use for comparison has the same tax classifications. This means the comparable property should have similar age, size, and characteristics.
If the committee rules that the initial valuation was correct, the property owner may appeal the decision to the court. Depending on the state where the property owner lives, property tax determinations can be appealed to a governing body that specifically handles real property tax appeals or to a state court.
How Are State Real Property Taxes Paid?
As mentioned above, the governmental entity responsible for assessing property taxes will send out real property tax bills annually. If a property owner purchased their home utilizing a loan from a lender, such as a bank or credit union, and has an established escrow account to pay the property taxes, then their property tax bill will be paid directly through that escrow account.
However, if an individual does not have an escrow account set up with a lender, they are responsible for ensuring their property taxes are paid on time to the correct government office. In general, an individual can submit a check to the tax office, but many states also offer an online payment option through debit cards or even charge cards.
If an individual fails to pay their state real property taxes properly, the failure to pay can result in penalties, late fees, and fines being added to the initial bill. Failure to properly pay property taxes may result in the government putting a lien on the property, which can have many negative repercussions. This is especially true if the property owner plans to sell the property later.
Are There Restrictions on Real Property Taxes?
In short, yes. Many states limit how much property taxes can increase on a year-to-year basis. For example, in the state of California, a reappraisal of property can occur only when there is a change in ownership or once new construction is complete, and property assessments by the tax appraisers can not exceed 2% annually.
Oregon is another state that limits the maximum assessed value of a property to no more than 3% annually. Other states also have comparable tax relief provisions.
Do I Need A Lawyer for Help With Real Estate Taxes?
As can be seen, the rules regarding state real estate taxes and what may be taxed differently from state to state and even from locality to locality. As such, if you have any questions regarding state real estate taxes, speaking with an experienced and local tax law lawyer is in your best interests.
An experienced real estate attorney will best help you understand your state’s laws regarding real property taxes. Finally, an attorney can also represent you in court, as needed, should any legal issues arise with your property’s valuation.