How to Estimate Property Taxes

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If you’re looking to buy a new home, here’s how to estimate the property taxes. Remember, it likely won’t be what the current owner is paying.

Calculating Property Taxes

Estimating property taxes involves a few key steps.

  1. Determine the assessed value of the property: The assessed value of a property is determined by the local government’s tax assessor’s office. This value is based on the property’s location, size, and other factors.
  2. Determine the tax rate: The tax rate is set by the local government and is typically a percentage of the assessed value. The tax rate can vary depending on the municipality and the type of property.
  3. Calculate the tax: To calculate the estimated property tax, multiply the assessed value of the property by the tax rate.

For example, if the assessed value of a property is $200,000 and the tax rate is 1.5%, the estimated property tax would be $3,000 ($200,000 x 1.5%).

It’s important to note that property taxes can change from year to year based on changes in the assessed value of the property, changes in the tax rate, and other factors. Additionally, there may be other fees or assessments that are added to the property tax bill, such as special assessments or fees for services like trash pickup or road maintenance.

Assessed Value

In some places, there are restrictions on how much the assessed value of a property can increase each year for current owners. This is often referred to as a “property tax cap” or “assessment cap.”

The specific rules for property tax caps vary depending on the location, but they generally work by limiting the percentage increase in the assessed value of a property each year. For example, a property tax cap might limit increases to no more than 2% per year, regardless of any increase in the property’s market value.

The purpose of these caps is to prevent property owners from being hit with sudden, large increases in their property tax bills. However, when the property changes ownership, the new owner doesn’t get the advantage of previous restrictions.

Instead, the property is usually reassessed based on its current fair market value. This can lead to a new owner having a much higher property tax bill than the previous owner.

To find out how your local government determines the assessed value of a property, you can contact your local tax assessor’s office or visit their website. In general, the assessed value is based on factors such as the size and location of the property, the condition of the property, and the value of comparable properties in the area.

Another thing you can do is look at property tax assessments for similar homes in the area that have sold recently. As long as the home has a similar value to the one you’re buying, the property tax bill should be much closer to what you’ll have to pay.

If you’re unsure about the assessed value of a property or how your property tax bill will be calculated, it’s a good idea to consult with a local real estate professional or tax advisor.

Other Adjustments

In addition to checking the assessed value of the property, it’s also important to consider whether the previous owner had any property tax breaks or exemptions that may have lowered their property tax bill. Here are some examples.

  1. Homestead exemption: A homestead exemption is a property tax break that can be applied to a primary residence. The exemption reduces the assessed value of the property, which in turn lowers the property tax bill. The specific rules for homestead exemptions vary by location, but they are often available to homeowners who live in the property as their primary residence.
  2. Senior citizen exemption: Some locations offer property tax breaks for senior citizens. These exemptions can reduce the assessed value of the property or provide other discounts on the property tax bill. The specific rules for senior citizen exemptions vary by location, but they are often available to homeowners who are 65 years or older and meet certain income or residency requirements.
  3. Other exemptions: There may be other property tax breaks or exemptions available in your location, such as exemptions for disabled veterans, conservation easements, or historic properties. These exemptions can vary widely by location and may have specific eligibility requirements.

It’s important to note that property tax breaks or exemptions are typically tied to the individual owner rather than the property itself. So, if the previous owner had a homestead exemption or other property tax break, it may not carry over to the new owner.

In some cases, you may be eligible to apply for the same tax breaks immediately. For example, you can get the Florida Homestead Exemption the first year you’re the owner of record. Other states have waiting periods such as needing the home to be your primary residence for at least five years.

You could even qualify for tax breaks that the other owner didn’t. For example, maybe the other owner didn’t use the property as a primary residence but you will. Or you could be a senior citizen and the other owner wasn’t.

Of course, you’ll need to do the math to see if your tax bill will be higher or lower than the previous owner’s. Some tax collectors have online tax calculators you can use, while others leave you to figure it out on your own.

ps. Definitely don’t ask your real estate agent. Many don’t fully understand the ins and outs of all the specific property tax situations but will confidently tell you wrong info.

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