Taxes can be confusing, but we’ve acquired some knowledge over our years in real estate that we can share with you to make the subject more manageable. The three things I’ll cover here are why taxes vary from one home to the next, when and why do taxes go up, and how can you keep your property taxes to a minimum.
Why taxes vary from home to home
As you’re shopping for your new home, you’ll notice that the taxes for each property can vary significantly, even if the home prices are very similar. The main reason for this is that the current owner may have tax exemptions, which have kept their taxes lower than similar properties. If the owner has an over 65 exemption, or a disability exemption, or a homestead exemption, these all reduce the tax amount you’ll see published on the, Zillow and the MLS.
The important note with this lower tax amount is that you’ll only enjoy it’s benefits for the first few months of ownership. So before you get excited about snagging a home with lower taxes, read on.
When will taxes go up, and why?
In your first calendar year of ownership, you’ll enjoy the benefits of the last owner’s tax rate. If they have low taxes because of a homestead of other exemptions, that’s what your taxes will be for the first few months. When new tax numbers come out, however, your taxes are likely to jump significantly. How high? Here is a good way to estimate.
Property Purchase Price x .023 (approximate tax rate) x .9 (approx. homestead exemption)/ 12 months
So if you know you’re going to pay $500,000 for a home, then you can ballpark your next year’s taxes at $10,350 a year or $862.50 a month. So, if the current taxes are $5,000, that’s great for year 1, but won’t matter in year 2.
What are exemptions, and how do I apply for one?
The most common exemption is the Homestead Exemption.
What is a Homestead Exemption, you may be asking? A Homestead Exemption lowers your taxes and caps the yearly increase on assessed value of your property. You must reside in the property as your primary residence. If you’re not sure whether the home qualifies as a primary residence, talk to your CPA. I’d hate to steer you wrong. But for our purposes, if it’s your home and you live in it, it’s your primary residence. And if you already live in it January 1st of 2017, you can declare a Homestead for 2017 taxes.
Austin Title has provided a helpful email and link about how to apply for your Homestead Exemption, along with a frequently asked questions section. You can access all that.
What if I think my taxes are too high?
Take a look at your property on(or the appraisal website for your county. Links to others are in the Austin Title email, linked above) and find out if your property is assessed above what you paid in 2016. This happened to Chris and I. When we purchased our property on Deerfield last year, the county released new tax assessments the next week, and they thought our property was worth $100,000 MORE than we paid for it.
We challenged that, and brought the taxes back down. The best way to challenge the tax assessment is to show the county your settlement statement. It’s an almost sure-fire way to bring your taxes down if your home is assessed for more than you paid. Only for a small window of time, though. For example, if you purchase a home in 2016 and your home is assessed for more than you paid for 2017 taxes, you can use the settlement statement to protest 2017 taxes. By the time 2018 taxes come out, your settlement statement from 2016 no longer helps. In other words, your settlement statement will help you in the following tax year.
Now a quick note about submitting your settlement statement: You only want to do this if your property is assessed at more than you paid. (Don’t do it if the county thinks it’s worth less). That might sound like a “duh!” statement, but it bears mentioning.
I would like to avoid boring you to death, so if you have further questions about taxes and how to protest them, drop me an email at firstname.lastname@example.org.
Each year at tax time, I consult clients and friends on their property taxes. If you have questions, don’t hesitate to drop me an email. I’m happy to help!