How to Plan for Property Taxes as a Homeowner

Property taxes are an essential part of homeownership and can vary widely depending on where you live. While they help fund local services like schools, road maintenance, and emergency services, property taxes can sometimes catch homeowners off guard if they aren’t prepared. Here’s a friendly guide on how to plan for property taxes and make them a manageable part of your homeowner experience.

1. Understand How Property Taxes Are Calculated

To effectively plan for property taxes, it’s crucial to understand how they’re calculated. Property taxes are typically based on the assessed value of your home and the local tax rate. The local tax rate is set by your city, county, or municipality, and the assessed value is determined by your local tax assessor, who estimates the market value of your property.

2. Include Property Taxes in Your Mortgage Payment

Many homeowners choose to include property taxes in their monthly mortgage payment through an escrow account. Here’s how it works:

• Each month, your mortgage lender collects a portion of your property taxes along with your mortgage payment and holds these funds in an escrow account.
• When your property taxes are due (usually annually or semi-annually), the lender pays them on your behalf from the escrow account.

This approach allows you to spread out your property tax payments throughout the year, making them easier to manage and ensuring they’re paid on time.

3. Know When Property Taxes Are Due

Property taxes are typically due once or twice a year, depending on where you live. It’s essential to know your payment schedule and plan ahead:

• Annual Payment: In some areas, property taxes are due once a year, often in the fall.
• Semi-Annual or Quarterly Payments: Other regions may break up the payment into two or four installments throughout the year.

Make sure to mark these dates on your calendar so you can budget accordingly or ensure your escrow account is funded properly.

4. Account for Changes in Your Property Taxes

Your property taxes can change over time due to several factors:

• Home Value Appreciation: If your home’s value increases, so will your property taxes. Even if your local tax rate stays the same, a higher assessed value will lead to a larger tax bill.
• Local Tax Rate Changes: Sometimes local governments adjust tax rates to fund new projects or balance budgets. It’s important to stay informed about local tax policy changes.
• Home Improvements: Adding a new room, deck, or significant upgrades can increase your home’s assessed value, resulting in higher property taxes.

It’s a good idea to check with your local tax assessor’s office or online tools to monitor your home’s current assessed value and anticipate any potential changes in your tax bill.

5. Save for Property Taxes if Not Escrowed

If you don’t include property taxes in your mortgage payments, you’ll need to save for them separately. Here’s how to plan:

• Set Aside Monthly Savings: Break your annual property tax amount into monthly installments and set aside that amount in a savings account. This way, you’re not scrambling to come up with a large lump sum when taxes are due.
• Use a Tax Calendar: Keep track of tax payment due dates so you can plan when to make the payments. Many homeowners find it helpful to use a tax calendar to avoid missing deadlines.

For example, if your annual property tax is $4,000, you could set aside approximately $333 each month to ensure you have enough when the bill comes due.

6. Look for Property Tax Exemptions

Many states and municipalities offer property tax exemptions or reductions to certain homeowners, which can lower your tax burden. Some common types of exemptions include:

• Homestead Exemption: Available in many states, this exemption reduces the taxable value of your primary residence.
• Senior Citizen or Disabled Person Exemptions: Some areas offer reduced taxes for seniors or individuals with disabilities.
• Veterans Exemptions: Many states offer property tax relief for military veterans or their surviving spouses.

Check with your local tax assessor’s office to see if you qualify for any exemptions and how to apply for them.

7. Understand the Appeal Process

If you believe your home’s assessed value is too high, you can usually appeal the assessment. Here’s how to go about it:

• Check the Assessment: Review your property assessment to ensure it accurately reflects your home’s condition and market value. If you notice any discrepancies, such as incorrect square footage or outdated information, you may have grounds for an appeal.
• File an Appeal: Most municipalities have a formal appeals process that allows homeowners to contest their home’s assessed value. This usually involves submitting evidence, such as recent home sales in your area, to show that the assessment is too high.

Appealing your property assessment could potentially lower your tax bill if you’re successful.

The Bottom Line

Property taxes are an essential, ongoing part of homeownership, but with proper planning, they don’t have to be overwhelming. By understanding how they’re calculated, budgeting for them throughout the year, and staying informed about local tax changes, you can manage property taxes with ease.