Property Tax Overview

Part
01
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Part
01

Property Tax Overview - Florida

Florida property tax is based on the assessed value of the property as of January 1st of each year, minus any exemptions or other adjustments used to determine the property's taxable value. A local millage rate (a dollar amount per $1,000 of taxable value) is applied to calculate the annual tax. Complete details about Florida property taxes are presented below.

How Property Taxes are Calculated

  • In Florida, property tax is based on the yearly assessed value of the property as of January 1st. Any exemptions or other adjustments used to determine the property's taxable value are subtracted from the total owed.
  • Property taxes in Florida are implemented with a millage rate being one-tenth of a percent, which equates to $1 in taxes for every $1,000 in home value.
  • A local millage rate (a $1 amount per $1,000 of taxable value) is applied to calculate the annual tax with the millage rate multiplied by the value of the property to determine the dollar amount of property tax. The millage rates are set by local governments and vary locally with 10 mills being equal to 1%.
  • A property appraisal is the first step in the Florida property tax process which is carried out by the property appraiser who reviews and applies exemptions and assesses limitations and classifications that can reduce the property's taxable value.
  • An annual 'Notice of Proposed Property Taxes' is sent in August of each year to each property owner by the property appraiser. Then, in October/November the county tax collector sends a tax bill to each property owner with the amount due by March 31st the following year.
  • Any increase in the value is limited to 3% of the assessment carried out in the previous year on the Consumer Price Index (CPI) in Florida, whichever is less. This initiative is known as the 'Save Our Homes' cap.
  • Additional taxes can be levied by special districts; for instance, water management is usually under 2 mills with county, city, and school districts being permitted to levy taxes at up to 10 mills each.
  • A detailed table showing the median property tax payment and the average effective tax rate for every county in Florida can be found here.
  • A complete equation for determining how much property tax is owed would be the following:
    • Assessed Value = Just Value - Assessment Limits
    • Taxable Value = Assessed Value - Exemptions
    • Total Tax Liability = Taxable Value x Millage Rate

Exemptions

1. Common Property Tax Exemptions

A) Homestead Property Tax Exemption

  • This exemption, up to $50,000, can be claimed by owners who own property and make it their permanent residence or the permanent residence of their dependents.
  • The first $25,000 exemption is applied to all property taxes including school district taxes with the additional $25,000 applying to a property with an assessed value between $50,000 and $75,000 and only to non-school taxes.

B) Save Our Homes Assessment Limitation

  • After receiving the homestead exemption in the first year, the property is assessed each year with the assessed value not allowed to increase more than 3% or the percent change in the Consumer Price Index (CPI), whichever is less.
  • The 'Save Our Homes' assessment limitation is the accumulated difference between the just (market) value and the assessed value.

C) Widow(er)’s Exemption

  • This exemption of $500 is available to non-remarried widows and widowers.
  • Surviving spouses of first responders who died in the line of duty are eligible for a total exemption on homestead property.

D) Senior Citizen’s exemptions

  • For residents aged 65 and older whose income does not exceed the income limits are eligible to up to $50,000 in senior citizens exemptions.
  • For seniors who have lived in their homes for at least 25 years and whose homes are valued at $250,000 have additional homestead exemptions if their income does not exceed the income limit.

2. Disability Exemptions

  • Properties owned and used as homesteads by the quadriplegic community are completely exempt from property tax.
  • Complete relief from property taxes through the total disability exemption is available to property owned and used as a homestead by a totally and permanently disabled person who must use a wheelchair or is legally blind and meets the income requirement.
  • Florida homeowners who are totally and permanently disabled can access the disability exemption of $500.
  • Those who are legally blind residents can assess the blindness exemption of $500.

3. Exemptions for Veterans

  • The veteran’s disability exemption of $5,000 is available for veterans who have at least a 10% service-connected disability per the Department of Veterans Affairs and is not limited to homestead property with an eligible surviving spouse able to carry over the exemption.
  • The combat injury discount, given as a percentage discount equal to the veteran's service-connected disability rating, is available to residents aged 65 and above who were Florida residents when entering service and were honorably discharged having a combat-related disability.
  • Total veterans disability exemption providing total and complete tax relief to the property of the veteran's primary residence is available for honorably discharged veterans with a service-connected total and permanent disability.
  • Active-duty personnel and veterans of the military, Florida National Guard, Reserves and Coast Guard deployed outside the United States in the previous calendar year may get a percentage exemption on the home's taxable value.
  • The real estate tax exemption for disabled veterans that are paraplegic, hemiplegic, and permanently and totally disabled, and those who must use a wheelchair for mobility or are legally blind, are exempt from real estate taxation if gross annual household income does not exceed the adjusted maximum allowed.

Payment Options

1. Standard Payment

  • Generally, tax collectors send tax bills (Form DR-528) in November with taxes due by March 31st.
  • Those who pay early receive a discount with one getting a 4% discount in November, a 3% discount in December, 2% in January, and a 1% discount in February.

2. Homestead Tax Deferral

  • A person entitled to claim the homestead tax exemption can decide to defer payment of part of the total combined taxes including non-ad valorem assessments.
  • One must file Form DR-570 which is the annual application for tax deferral with the county tax collector by March 31st of the following year when the taxes were assessed.
  • Approval will defer taxes that are more than 5% of last year's household income with households having income less than $10,000 being deferred.

3. Partial Payment

  • One or more partial payments for property taxes may be accepted at the tax collector's discretion as long as payment is made before April 1st, which is the delinquency date.
  • The remaining amount due is to be paid by the taxpayer and any balance not paid by April 1st becomes delinquent tax.

4. Installment Payment of Property Taxes

  • One can prepay property taxes on an installment plan should they apply with the tax collector by May 1st of the year the taxes are assessed.
  • The taxpayer will not be required to submit annual applications after submitting the initial application so long as they choose to prepay taxes by Installment.

Differences in Customer Segments

  • 'Use assessment' is any assessment for tax purposes that is less than the property's just (market) value.
  • In Florida, an appraiser may assess property at a lower than just value if it meets the statutory requirement of the following uses namely historic property, high-water recharge, pollution control devices, agricultural land, conservation easements, and new construction for parents or grandparents.
  • For residents aged 65 and older whose income does not exceed the income limits are eligible to up to $50,000 in the senior citizens' exemptions.

Part
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Part
02

Property Tax Overview - New York State

New York State offers senior citizens, veterans, people with disabilities, among others, tax exemption of about 50% reduction in the assessed value of their residential property. Below are explicit findings on the request.

New York State Property Tax Calculator

How Property Taxes are Calculated

Property Tax Exemptions in New York State

  • When it comes to calculation of property taxes among different customer segments in NYS, some segments, such as that of senior citizens, have been exempted from taxation.
  • Senior citizens and people with disabilities are given up to a 50% reduction in the assessed value of their residential property by the New York State.
  • For senior citizens to qualify for this exemption, they must be 65 years or older and meet other requirements such as certain income limits.
  • Veterans receive an exemption that reduces their assessments when they purchase property using money from their insurance settlements, pensions or bonuses.
  • Also, people earning less than $250,000 are given STAR exemption during property tax calculations.

Other Userful Information on Properties Exempted From Taxation

  • In 2016, the total amount exempted by the New York State was $457 billion. The “Residential” category was the largest, both in total dollars and number of exemptions. The amount exempted for this category was $177.2 billion (39% of the total amount exempted).
  • Government Property: Properties owned by the school districts, United States, New York State and its local governments, and foreign or native American is exempted from taxation. (Local Government & School District: $103.6 billion = 23%, New York State: $44.8 billion =10%, and U.S., Foreign or Native American: $14.1 billion = 3%).
  • Residential/Individual Property: The most common residential exemption is for School Tax Relief (STAR), which exempts a portion of the value of a taxpayer’s primary residence for school tax purposes only. Other individual exemptions vary and may cover property owned by volunteer firefighters, veterans, senior citizens, and others.
  • Non-Profit Organizations Property: Properties owned by the charitable, religious, hospital, mental improvement organizations are not taxed by the state. (The total amount exempted in this category in 2016 was $66.1 billion = 14%).
  • Industrial/Commercial Property: To encourage and increase economic development, commercial/industrial properties are sometimes exempted from property taxes by the state. (Amount exempted in 2016: $33.9 billion = 7%)
  • Others: Public or subsidized housings, agricultural, and forest properties are exempted from taxation by the New York State. (Amount exempted in 2016: $17.4 billion = 4%)

Payment Options

Difference Between Customer Segments


Research Strategy

To find information needed to answer the research criteria, we began our search by going through the New York State government website and third-party sources such as The Balance. From these sources, we could find all the relevant information needed to answer the research criteria. Also, during our search, we could find some useful information from 2016 that shows properties excluded from taxation in NYS.

Part
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Part
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Property Tax Overview - California

Property taxes in California are calculated by multiplying the value of the property by 1%. This is then added to the supplemental tax charges instituted by the individual's county.

Property Tax Calculator

  • SmartAsset, which is a financial technology tool, provides an online means of calculating the property tax for the state of California. This calculation is based on the individual's assessed home value and location.
  • Tax-Rates also provides a tool for calculating property tax in California. This calculation is based on the individual's county and appraised property value.

How Property Taxes are Calculated

  • Property taxes are calculated based on the Article XIII A of the California Constitution (proposition 13).
  • For the first year, the property tax is calculated by multiplying the value of the property by 1%.
  • Subsequently, the property value is changed by the tax assessor based on the inflation rate and then multiplied by 1%.
  • However, counties have supplemental taxes which are based on the rate agreed by the voters in the county.

Exemptions

  • Personal property such as furniture, hobby equipment are exempted. No filing is required for the exemption.
  • Property tax is reduced by $7,000 if the home is the owner's main place of abode.
  • Disabled veterans or spouses of dead disabled veterans are allowed to have an exemption of $100,000 on the main residence of the veteran. The exemption can be as high as $150,000 if the applicant qualifies for the $40,000 income limit.
  • Properties which are used solely for church religious worship are exempt. However, an annual filing is required.
  • Public libraries and museums are exempted from property taxes provided they always give free access to the general populace.
  • Tribal housing units which cater for low-income communities and built for nonprofit purposes are also exempted from a property tax.
  • The Board of Equalization and the county assessors of California grant eligible charitable organizations welfare exemption with regard to properties owned by them.

Payment Options

  • Property taxes are paid in two installments.
  • The first installment period spans from July 1 to December 31, and the deadline for payment during the first installment is December 10.
  • For the second installment, the deadline is April 10. The installment period spans from January 1 to June 30.
  • Reduction in property taxes is made available in form of partial exemptions to owners living in their property, disabled veterans and spouses of late disabled veterans.

Differences between Customer Segments

  • Individuals who are more than 55 years old and those that are physically or permanently disabled are eligible for tax relief. The taxable value of their main residence is transferred to their replacement property provided it has the same or lower value.
  • Homeowners benefit from property tax reduction, provided they live in that particular home property.




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Part
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Property Tax Overview - Texas

Texas does not have provisions for state property tax. Instead, the Texas constitution and statutory regulations allows local governments to set and collect property tax. Texas mandates taxing units to offers various total (absolute) or partial property tax exemptions from values of appraised property. Below is an overview of the findings.

Tax Calculator

  • SmartAsset has a property tax calculator for Texas that provides an estimate based on location and home value.
  • According to SmartAsset, averaging 1.83%, property taxes are in Texas are way above the 1.08% national average, and sixth highest in the country.

Property Tax Calculations

  • Texas does not have provisions for state property tax. Instead, the Texas constitution and statutory regulations allows local governments to set and collect property tax.
  • Texas neither sets nor collects property taxes. The state also does not involve itself in the disputes that sometimes arise between the tax payers and their local governments.
  • In essence, property taxes are local taxes that are used by local governments to pay for streets, schools, fire protection, law enforcement, and schools, among other local services.
  • The calculation of property tax in Texas is a complicated process involving several local government entities. Each county has an appraisal district that determines the property value through the chief appraiser.
  • All dissatisfied property owners can file their appeal with the appraisal review board which can either revise or maintain the value. In case the property owner is still dissatisfied, he can arbitrate further through the court process.
  • All local governments in Texas are required to allow between May and July for appraisal arbitration.
  • The final appraisal amounts are determined after tax exemptions are subtracted.
  • Thereafter, tax rates are adopted by county governments. Local taxing units (including county governments, junior colleges, school districts, cities, and special districts, among others) determine the minimum amount needed for the uninterrupted provision of public services within a financial year and property tax rates are set based on the budgets of the taxing units.

Exemptions and Differences Between Segments

  • Texas mandates taxing units to offers various total (absolute) or partial property tax exemptions from values of appraised property. The former exemption excludes the entire property from being taxed while the latter reduces a fixed dollar amount or a percentage of the appraisal amount.
  • The state sets certain mandatory exemptions but allows the taxing units to decide locally whether to offer some exemptions (local option).
  • Residence Homestead: School districts in Texas are mandated by statutory laws to provide a "$25,000 exemption on residence homesteads." Also, taxing units collecting flood control or farm-to-market taxes are mandated to provide a $3,000 on residence homestead tax. Additionally, taxing units are allowed to decide locally whether to provide a "separate residence homestead exemption of up to 20% of a property's appraised value."
  • Disabled and/or Senior Citizens: School districts in Texas are mandated by statutory laws to provide an additional $10,000 tax exemption from the appraised value of residence homesteads owned and occupied by disabled citizens and/or persons aged over 65 years. Additionally, taxing units are allowed to decide locally whether to provide a separate residence homestead exemption of not less than $3,000. This exemption applies to a surviving spouse as long as they are aged over 55 years.
  • Veterans: Texas statutory laws allow partial exemptions for any type of property owned by "disabled veterans and surviving spouses and children of deceased disabled veterans." Also, residence homesteads that are donated to disabled veterans by charitable organizations are eligible for partial exemptions. The exemption amount is dependent on the percentage of service-connected disability, for example, a person eligible to 100% disability compensation, or is rated 100% disabled, or is considered 'unemployable' due to service-related disability is eligible for a 100% exemption. The exemption extends to an unmarried spouse of a disabled veteran. Unmarried surviving spouses of U.S. soldiers killed in action are eligible to absolute exemption on residence homestead taxes.
  • Active Military Personnel: While there is no special provision for tax exemptions for active military personnel (unless they meet they aforementioned criteria), they are not charged any penalties or interests on delinquent payment of property taxes if they were serving on active due at the time the tax was due.
  • Local official also extend certain exemptions to "solar and wind-powered energy devices" and charitable businesses and organizations.

Payment Options

Discounts

  • Taxing units in Texas are allowed to offer discounts to property owners who complete their tax payments early. Two types of discounts are allowed: 3-2-1 or October-November-December.
  • The 3-2-1 discount is allowed if a taxing unit mails the tax bills after September 30. A 3% discount is allowed if the property tax is paid "before or during the next full calendar month following the date the tax bills were mailed." 2% and 1% are allowed discounts if the property taxes are paid within the second and third calendar months.
  • The October-November-December discount allows taxing units to offer 3%, 2%, and 1% discounts if the taxes are paid within October, November, and December, respectively, regardless of the mailing date.

Installment Payments

  • Texas statutory laws allow all the aforementioned persons who qualify for property tax exemptions to pay their taxes in four equal installments without no interests or penalties. First installments and requests for installment plans should be made before the set delinquency dates.
  • Additionally, business and residence homestead property taxes can be paid in four equal installments if they are within a disaster area and have directly suffered damages due to the disaster.

Split Payment

  • Texas statutory laws allow taxing units that collect their own taxes to allow property owners to pay in two installments: the first half by November 30 and the second half by June 30 the next year.

Partial payment

  • Texas statutory laws allow property tax collectors to accept partial payments. However, acceptance of partial payments does not change the predetermined delinquency dates and interest and penalties are charged on any portions that are unpaid after the delinquency date.
Part
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Part
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Property Tax Overview - Chicago

The Cook County Assessor’s office determines the property tax to be paid by homeowners and businesses in Chicago. Property tax is calculated using a property market value, the equalization factor, the exemptions, and the tax rate, which is currently 2.21% for the Chicago metro area. Property tax exemptions in Chicago include the senior citizen's exemption, the disabled veteran's exemption, and the senior freeze exemption. Partial property tax payments are only allowed in two installments but must be paid by the deadline of March 3. Detailed information is below.

Property Tax Calculator for Chicago

  • The City of Chicago is the county seat of Cook County, which has over 130 municipalities in that County.
  • SmartAsset has an option to help people to calculate the property tax in different counties and cities. For Chicago, one is required to enter "Chicago, IL" in the "enter your location" space and then enter an assessed home value.
  • For example, for an assessed home value of $250,000 in Chicago, the property tax is $5,293 per year according to this SmartAsset calculator page.

How Property Taxes are Calculated in Chicago

  • Those owning homes in Chicago pay property taxes that are 93% higher than other homeowners in the U.S.
  • According to Andrea Raila, a senior tax analyst at Raila & Associates, the Cook County Assessor’s Office determines the amount of property tax that homeowners or business owners in Chicago have to pay. The figure is determined every three years and is "based on the previous three years of sales activity and market for similar homes in a particular neighborhood."
  • The estimated market value assessment of a property, the tax rate, the multiplier or equalization factor, and the exemptions are used to determine property taxes in Chicago. The market values are assessed at 10% or "1/10th of market value for homes and 1/4 of market value for businesses." For example, a home valued at $1 million has a $100,000 assessment and the property tax is then applied to the $100,000 figure.
  • The Chicago metro area has a property tax rate of 2.21%. This is one of the highest tax rates in the United states.
  • Also, in 2017, the average Chicago homeowner paid nearly $6,000 in annual property taxes, with the average home value coming to $271,000.
  • According to Crain's Chicago Business, the effective tax rates vary by counties, with homeowners in the Lake County paying 2.7% and those in McHenry County paying 2.82. The DuPage county charges 2.17% in taxes; Kane County charges 2.76%; Will County charges 2.38%; and the Cook County charges 2.10% in taxes.
  • Depending on the taxing authority in Chicago’s eight townships, there may be additional taxes that a homeowner may be required to pay.
  • Homeowners have 30 days to appeal for the valuation of a property assessment to be re-done. If the appeal is not successful in lowering a homeowner’s property tax, they can appeal at the Cook County Board of Review, which is independent from the assessor. If this is unsuccessful, the homeowner can also appeal at the administrative level of the Property Tax Appeal Board in Springfield or at the Circuit Court of Cook County.
  • According to the assessor's office, 51% of residential appeals succeed in reducing the property tax.

Exemptions

  • Tax exemptions can reduce the total property tax paid. There are five main exemptions in Chicago. These are the senior citizen's exemption, the homeowner's, the senior freeze, the disabled persons, and the disabled veteran's exemption.
  • The homeowner's exemption went up from $7,000 to $10,000, while the senior citizen exemption increased from $5,000 to $8,000.
  • The maximum annual income that seniors need to have to qualify for the senior freeze exemption was changed from less than $55,000 to less than $65,000.
  • The exempted amounts are deducted from the assessed value of homes.

Options to Pay in Installments and Discounts Offered

  • The property tax in Chicago can be paid in installments. Partial payments are only allowed if one decides to pay part of the bill at the time the installment plan is created, and part of it at a later date. However, the full property tax amount must be paid by March 3.
  • Home owners also have the option of paying the bill early, up to three months before the deadline.
  • The homeowner’s exemption provides a discount of $10,000 while the senior citizen exemption provides a discount of $8,000.

Differences Between Different Customer Segments

  • There are differences in how the market values for homeowners are assessed. For example, for homeowners, a 1/10th of market value is charged, while for business property owners, 1/4 of the market value is charged.
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Part
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Property Tax Overview - Phoenix

The City of Phoenix offers seniors (65+) property tax exemption and owner-occupied residences a "homeowner discount of up to $600."

Property Tax Calculator

Property Tax Calculation

  • Phoenix property owners pay property tax on the assessed value of a taxable property.
  • The current primary and secondary property tax rates in the city are $1.3055 per $100 and $0.8241 per $100 of assessed value, respectively."
  • The assessed value is divided by 100 and multiplied by the tax rate to compute the annual property tax.
  • For example, if a property's value is $100,000 with an assessed value of $10,000 ($100,000*10% (assessment ratio)) and the average tax rate of $1.3055 per $100 assessed value, the primary property tax is $130.55 per year.

Property Tax Exemptions

  • The City of Phoenix, Arizona offers property tax exemptions for seniors 65 or older, on a fixed income.
  • The exemptions are administered through two state government programs: the Senior Property Valuation Protection Program, which "freezes the home values on which seniors are taxed, shielding them from large increases in tax bills," and the Maricopa County Elderly Assistance Fund, where the "average homeowner receives about $200 per year in assistance."

Property Discounts

  • Owner-occupied residences "receive a Homeowner Rebate/Discount of up to $600" in Phoenix, AZ.

Differences Between Customer Segments

  • For homeowner's residential property in the city, the "average tax rate before exemptions and rebates usually lands between $12 and $13 per $100 of assessed value." This is different compared to the average tax rate for property managers of between $0.8241 and $1.3055 per $100 of assessed value.
Part
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Part
07

Overview - Property Tax Terms: United States

Research has been conducted to define the specified terms: market value, assessed value, assessment ratio, exemptions, taxable value, sum of all relevant millage rates, property tax before credits, homestead credits, and circuit breakers. A deep dive of these definitions has been provided below.

Market Value

  • Market value is "the most probable price that a given property will bring in an open market transaction."
  • Market value is the price that a prospective buyer is willing to pay for a given home.
  • Market value is also the price that the seller is willing to accept for a given home.
  • Real estate agents can help to determine the most accurate market value of a home, which is assessed based on a range of variables, including external and internal home characteristics, supply/demand, and location.
  • Overall, there is no right or wrong number. Instead, market value ultimately depends on what the buyer/seller are mutually willing to pay and accept.

Assessed Value

  • Assessed value is similar to market value, however, it is typically a lower amount and is used differently than market value.
  • Professional property assessors (employed by a municipality) place an official value on a piece of real estate.
  • This value is used to levy property taxes. In other words, this is the official value given to a home for tax reporting purposes.
  • Assessors analyze similar properties and what they have sold for, factor in the value of home improvements, any income the property is generating (e.g. rental income), and other variables.

Assessment Ratio

  • When a home assessor has made a determination of assessed value, they will then "deduct any tax exemption for which [the homeowner qualifies]. Then, that number is multiplied by an 'assessment rate', also known as an 'assessment ratio.'"
  • An assessment ratio is a standardized percentage that is set by individual tax jurisdictions (usually between 80% and 90%).
  • Multiplying the assessed value and the assessment ratio provides the taxable value of a property (in other words, the dollar value of the property that can be taxed by the government).

Exemptions

  • Generally speaking, tax exemptions are used to reduce or eliminate the amount an individual is required to pay in taxes, similar to a tax deduction.
  • Exemptions help determine an individuals 'taxable income' (in other words, the income that can be taxed by the government).
  • There are many different types of tax exemptions that exist.
  • Property tax exemptions are specific to the property's local state, county or city and have to be located and applied for by an individual property owner (or their tax professional), as these exemptions are not automatic (i.e. the government will not automatically apply them nor automatically tell an individual if they qualify for one).
  • Property tax exemptions can come in the form of homestead exemptions, disabled homeowners, senior homeowners, military veterans, renovations, energy incentives, and other exemptions.

Taxable Value

  • While assessed value is the value, or worth, of the home determined by the tax assessor, taxable value is similar but slightly different.
  • Taxable value is the value of the property that a property owner actually ends up paying tax on.
  • In some cases, the assessed value and taxable value may end up being the same, however, depending on the location of the property, the taxable value may be lower due to additional adjustments or exemptions that the owner qualifies/applies for.

Sum of All Relevant Millage Rates

  • According to Investopedia, "a millage rate is the tax rate used to calculate local property taxes."
  • Also known as the 'mill rate' or 'property tax rate', the millage rate is the amount that the homeowner has to pay based on every $1,000 of their property's assessed value.
  • Ivestopedia notes that "different agencies within a municipality may have their own millage rates, which are factored into a homeowner's property tax calculation."
  • A single property may be subjected to several tax rates that are applied by different entities, for example, a municipal tax, county tax, and school district tax. The sum of these tax rates is called the 'millage rate' (i.e. sum of all relevant millage rates).

Property Tax Before Credits

  • Property tax before credits is the figure that results after millage rate is applied to the taxable value of the property.
  • Property tax credits "either directly reduce the property tax bill, or that reimburse part of the property tax bill." The tax bill prior to these tax credits being factored in is the 'property tax before credits'. In other words, what the property owner would have to pay in taxes before their credits are subtracted from the final tax bill.

Homestead Credits

  • Homestead credits are a type of tax credit intended to be used by renters and low-moderate income homeowners.
  • This credit is "designed to lessen the impact of rent and property taxes."
  • When this credit is applied, qualifying individuals can be reimbursed some of their withheld taxes.
  • U.S. states may have their own qualifications for the homestead credit.

Circuit Breakers

  • A circuit breaker is a type of property tax break.
  • Overall, a property tax circuit breaker is "any property tax relief that limits or reduces property taxes for certain individuals [and are] usually property tax exemptions or credits specifically enacted for low-income, elderly, or disabled property owners."
  • Circuit breakers are used when property taxes would infringe too much on an individual's income.
  • Circuit breakers are available in 18 states and Washington, D.C. as of 2018 and another 13 states provide some similar type of relief.
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Part
08

Property Tax Concerns - United States

Five of the top concerns people have regarding property taxes in the United States are that it is not progressive; it can hardly be controlled. The property tax is continuously changing and rising. Other concerns include that it usually involves multiple government entities, and tax breaks are hard to get.

1. IT IS NOT PROGRESSIVE

  • It is a general belief that property taxes only affect homeowners, as those living under rent do not have to pay a property tax bill. However, when property taxes go up, landlords usually factor the cost into the cost of rent for their houses, which, in turn, leads to higher rent fees for tenants.
WHY IT IS A CONCERN
SOLUTIONS
  • Create a more progressive tax policy. For example, the Treasury Department could write regulations to force fair valuations of property, as a lower property valuation can help to reduce the property tax on it.
  • "Classification and taxation of property according to use is a common means of taxing commercial and industrial properties at a higher rate than residential properties. Thus, changing the class rates to accommodate a shift in the value base can be an appropriate short-term remedy."

2. IT CAN HARDLY BE CONTROLLED

  • Individuals can influence most other taxes. For example, to reduce one's sales tax, they can buy fewer things. To minimize income tax, the individual can make contributions to a traditional individual retirement account (IRA) or utilize multiple deductions and credits. However, when it comes to property tax, it is imposed as flat rates on the property owned.
WHY IT IS A CONCERN
  • Property tax in the US increased by 4% between 2017 and 2018, with some states surpassing the national average.
SOLUTIONS

3. CONSTANTLY CHANGING AND FLUCTUATING TAXES

  • Compared to most other taxes, property taxes usually fluctuate based on the changing directives of the government entities enforcing it. While some states in the US have put laws in place to prevent such undue fluctuations, homeowners still experience dramatic changes every year. Thus, budgeting for property taxes can be frustrating.
WHY IT IS A CONCERN
  • Extremely high property taxes can make homes unaffordable for retired people who live on fixed incomes, or people facing financial challenges due to a lost job, divorce, and other reasons. It could also "influence the housing market, making it tougher for entry-level buyers to afford neighborhoods with higher property taxes."
SOLUTIONS
  • The use of circuit breakers which "attempt to reduce a property tax overload by providing a refund or credit for taxes that exceed a set percentage of the property owner's income."
  • Applying shorter periods between property revaluations helps to reduce the "sticker shock," which follows the dramatic shifts and increases of property tax due to reassessment.

4. IT INVOLVES MULTIPLE GOVERNMENT ENTITIES

  • Paying property taxes may involve different government entities, depending on the way the local authorities in the area operate.
WHY IT IS A CONCERN
  • Some localities combine state, county, and city property taxes into one bill.
  • Also, municipal services, such as garbage collection, sewer access, etc., might be included in the bill. This might then add up to constitute a considerable bill, which could lead to difficulties when trying to sort out the bill's breakdown by category, as well as who is making the charge. As such, it would be more challenging to find ways to reduce property tax.
SOLUTIONS
  • Making use of tax preparation service options by utilizing "professional tax preparation, personal accountants, and free help from the IRS."

5. TAX BREAKS ARE HARD TO GET

  • While some localities provide property owners with the option of tax breaks, finding adequate information about them can be quite tricky. For example, many states offer lower property tax rates for older people over 65 years. However, in some cases, they might only get such options when they apply for favorable treatment. Other such provisions can also be confusing and tricky to claim.
WHY IT IS A CONCERN
  • Even with an escrow account, property taxes still constitute a significant portion of one's monthly mortgage payment. As such, breaks and exemptions are essential.
  • The state, county, or city agency collecting property taxes usually fails to inform taxpayers whether they qualify for a tax exemption.
SOLUTIONS
  • "Eliminating stringent income limitations on eligibility for senior citizen deferral programs, expanding eligibility for circuit breakers and tax deferral, and including such measures in state rather than local tax relief programs would allow more taxpayers to participate."

RESEARCH STRATEGY

Information regarding the top concerns for people regarding property taxes was scarcely available, even after searching through survey reports from financial and research sites such as the World Bank Group and The National Academies Press. However, we obtained a report which provided a list of reasons why people hate property taxes in the US from The Motley Fool, a private financial and investing advice company. Based on our findings in this report, we compiled five concerns as the top concerns to suit the criteria for this request.

We made use of a source that is beyond Wonder's standard two-year timeframe for sources. However, we only utilized this report as it provided valuable insights into some solutions for the concerns regarding property taxes in the US.
Sources
Sources

From Part 05
Quotes
  • "The effective tax rate for the Chicago metro area, 2.21%, is among the highest in the U.S."
Quotes
  • "Homeowners in the Chicago area are paying higher property tax bills, on average, than 93 percent of the country."
  • "The average 2017 tax bill on a single-family home in Lake County was higher than nearly 99 percent of the 1,414 U.S. counties."
Quotes
  • "Reassessments are done every three years and are based on the previous three years of sales activity and market for similar homes in that particular neighborhood."
Quotes
  • "They will have 30 days to file an appeal at the Cook County Assessor's Office and I definitely recommend that they do so, or at least look to see if they are fairly assessed or not, and that's just the first step in the process."
Quotes
  • "Homeowners also should review their exemptions because they can reduce their tax bill if they have the proper exemptions applied, Griffin noted. The three main exemptions are the Homeowner’s, Senior Citizen, and Senior Freeze."