Property Taxes and Deductions
Created by FindLaw's team of legal writers and editors | Last reviewed June 20, 2016
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When you own a home or parcel of land, property taxes literally come with the territory. Property taxes fluctuate greatly from town to town, and payment policies vary from lender to lender. Given this variation, potential home buyers should carefully consider property taxes as an additional, ongoing expense of home ownership. But owning a home can also be a huge benefit at income tax time. Many expenses related to owning a home, such as mortgage interest and eco-friendly upgrades, are deductible and lower your overall tax burden. This section includes tips on using your home as a tax shelter, in-depth information on property taxes, and helpful resources from the Internal Revenue Service (IRS).
How Property Tax is Assessed
Appraisers use a few different methods to assess the value of real property, on which your property tax rate is based. These include:
- Cost (or Replacement) Method - This is calculated by estimating how much it would cost to replace a structure, using current material and labor costs, often used for unique properties with no comparable properties
- Income Method - This method considers income potential of a given property, typically used to assess the value of apartment complexes, warehouses, and shopping centers
- Market Method - The most common method for determining home values, similar properties are compared and then adjusted for differences
For private residences, the appraiser typically tries to determine how much a typical buyer would pay for the property based on comparable property values, local construction costs, nearby rental rates, and other factors. You can contact your local assessor's office to find out more about how your property value (and thus property tax) was assessed.
Property Tax Exemptions
Some properties may be eligible for certain exemptions, often enacted by state or local government in order to either attract new businesses or to encourage certain developments. For instance, a historic neighborhood may receive full or partial tax exemptions in order to encourage restoration or redevelopment efforts. Additional exemptions may be applicable to the following categories:
- Municipal levies
- County, city, and school uses
- Government property (such as that required by state law)
- People over the age of 65
Challenging the Valuation of Your Property
It's actually quite common to challenge one's property valuation; and owners are usually free to discuss the value with the assessor. Property owners must be prepared to show evidence that their property was not assessed properly. Mistakes in property assessment leading to a higher property tax may include obvious errors such as listing too many bedrooms or using the wrong taxing authority. Also, if a pest infestation or cracked foundation (for example) were originally overlooked, properly accounting for those conditions may lower your tax bill.
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