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Impact of Changing Property Values on Property Taxes

Owning a home comes with the responsibility of monthly mortgage payments and real estate property taxes. Residential property taxes vary from city to city, as do payment policies and regulations. Homeowners and potential home buyers should give careful consideration to their property tax bills. They are an additional, ongoing expense of home ownership. Real estate taxes may vary with:

  • Assessor appraisals or valuations of taxpayer property
  • The value of the property, often based on fair market value
  • Local government policies directing a local tax assessor's office

What Can Increase Property Taxes?

Individuals may pay more in property tax if either:

  • The tax rate (millage) for real property increases
  • The appraised value of the property (assessed value) increases

The property tax rate can increase:

  • If a taxing district needs to raise revenue in order to provide services
  • As a result of voter-approved bonds and override levies

If a district's budget increases while the assessed value of all property remains the same, in most cases the tax rate will rise and property owners will pay higher taxes.

Even if the tax rate remains the same, individuals' taxes may rise if their property value increases. Some other factors that will adjust the tax value of a property for tax purposes include:

  • Adding a new room, bathroom, fireplace, terrace, or other improvement
  • Expanding or adding a garage or building an accessory dwelling unit (ADU)
  • Fluctuations in real estate market conditions based on supply and demand in the housing market
  • General neighborhood development, e.g. new school district in proximity to a property

Taxes won't always skyrocket in response to the market value of the property increasing. The assessed value of the property may be subject to increase limitations. For instance, some states have laws that cap yearly increases to a fixed percentage.

How Jurisdictions Determine Taxable Value of a Home

Besides reflecting added features to the home, the property's value is a part of the economy of the area. The development of upscale homes nearby can make property more valuable. Comparable properties and recent comparable sales are benchmarks for valuing property. If individuals live in a community with rapid growth and the demand for housing increases, there's a good chance that their property's value will go up.

The opposite is true as well. Suppose the owner's property is in poor repair or becomes damaged by a fire, earthquake, or flood. What if a major structural problem develops or the neighborhood deteriorates? The assessed value of the home would probably decrease as well. A poor local economy, slow growth, and low demand for homes in an area can depress a property's value.

Some states have laws that allow for property tax exemptions. For example, the California Constitution allows homeowners to deduct up to $7,000 from a property's assessed value. The exemption applies to the property tax assessment of any property owned and occupied as a primary residence. This is not to be confused with a homestead exemption, which protects homeowners from creditors.

Have a Property Tax Issue? Talk to a Lawyer

If your local government has miscalculated the value of your property, you may be paying excess taxes. The assessed value of your home may be subject to reassessment if the government makes a mistake. If you're in a similar situation or just need advice regarding your property taxes, get legal advice from a real estate attorney.

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