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Property taxes are a major source of income for local governments. But while they help fund key public services, property taxes can be a financial burden for some Americans.
On average, U.S. households spent $1,556 on property taxes nationwide in fiscal year 2016, according to a 2019 Tax Foundation analysis — although collection amounts vary by region.
While local governments generally manage property taxes, states typically have some oversight. When it comes to property tax relief, many states have created programs aimed at easing property tax burdens on homeowners who qualify.
- How do property taxes work?
- How much are property taxes?
- What is property tax relief?
- How can I apply for property tax relief?
How do property taxes work?
Property taxes are generally based on where you live and the assessed value of your home. Local governments typically assess home values, establish tax rates, issue property tax bills and collect taxes under guidelines established by the state government.
A property assessor calculates home values on a regular basis. In some states, assessment takes place annually, but the frequency can vary by state. Here’s how a typical local government might establish taxable home values.
An assessor will estimate a home’s market value, compare it to similar properties, and maybe even check for evidence of home and land improvements. Once the assessment is complete, the city or county plugs the home value into its property tax formula. It may take a percentage or dollar amount of the home’s assessed value and multiply that number by the tax rate, which is usually set at the county level.
How much are property taxes?
The amount of property taxes varies heavily by region. For example, Washington, D.C., residents paid $3,535 per year on average in 2019, while Alabama residents paid $548 in 2019, according to a Tax Foundation analysis.
The Tax Foundation points out that property taxes help pay for public services, which can make an area more desirable and even increase residential market values. Assessed values generally move in tandem with market values — and a higher assessed value typically means a higher tax bill.
But tax collection practices also vary by state. To keep this bill from ballooning year to year, some states take steps to curb property taxes. For example, they may limit how much a tax bill can increase or implement a standard homestead exemption, which automatically reduces a home’s assessed value.
How do homeowners pay property taxes?
There are two main ways to pay property taxes. If you have a mortgage, your lender can wrap your property tax payment into your monthly mortgage payment, then pay the bill on your behalf when it’s due. But if you own a home and have no mortgage, then you pay property taxes directly to your local government.What parts of your house payment are tax deductible?
What is property tax relief?
Property tax relief programs, sometimes called exemptions, release eligible homeowners from paying all or part of their property tax obligation. How long the exemption lasts can vary depending on where you live, and the reason you’re applying for the exemption.
The tax-relief process varies with every state and county, and potentially every city. In general, you’ll have to meet certain eligibility requirements, submit an application and provide documents that support your request. Some common property tax exemptions reduce or waive property taxes for …
- Surviving spouses
- Minor children whose parents are deceased
- Homeowners who recently made energy-efficient home improvements
- Blind, elderly, disabled or low-income residents
You may have to submit a new application each year, though some local governments have extended application deadlines for the 2020 tax year.
How can I apply for property tax relief?
Depending on the state or county, there are a few ways to apply for property tax relief: online, by mail or at your local tax office. Some states also have call centers to answer property owners’ questions. But guidelines vary, so check your city, county or state’s website for information before you apply.
The application process can vary by jurisdiction, but here’s an example of how it might work.
1. Get an application and check the requirements. Local governments often make the application and instructions available on their websites. Read through the eligibility requirements carefully to see if you qualify for property tax relief.
2. Complete the application and gather your documentation. The documents you need may vary, depending on the program guidelines and type of exemption you’re applying for.
3. File the application by the deadline. After you submit the application, ask about next steps and when you may receive a response.
Property tax relief is designed to do just that: relieve taxpayers from the burden of high real estate taxes. The best way to learn about what property tax relief might be available to you is to visit your city, county and state websites for information on programs and eligibility requirements.
How has COVID-19 affected property tax relief?
With the spread of the coronavirus, many people have lost a reliable source of income and are struggling financially. Some states and counties are taking steps to alleviate the property tax burden during a stressful time. Depending on the state or city, these measures could include extended deadlines, waived fees and penalty cancellations.
During the coronavirus pandemic, some cities and states have extended property tax deadlines or left the decision to individual counties. For example, the city of Boston has extended the due date for property tax bills from May 1, 2020, until June 1, 2020, to give residents more time to pay.
Local governments may also decide to waive fees and penalties, which are typically added to late or delinquent payments.
Other states, such as California, have asked local governments not to move the property tax deadline because public services depend on those tax dollars. Counties under these restrictions may still have a few options, though. For example, residents impacted by COVID-19 may be able to apply for a penalty cancellation or set up a payment plan for their overdue tax bills.
Check your locality’s website for more information. Depending on where you live, you might not be able to request a penalty cancellation until after the official tax deadline has passed. If you do request a penalty cancellation, be prepared to explain how you’ve been impacted by the coronavirus and to show documentation.Learn more about coronavirus and your finances
Rachel Weatherly is a tax product specialist with Credit Karma Tax®. She studied accounting and finance at Western Carolina University and has also worked as a tax analyst. You can find her on LinkedIn.