How To Lose Debt

If you are lucky enough to own your own home, it will be subject to real estate taxes.  These taxes are deductible from your Federal Income Tax if you itemize your Federal deductions.

Many jurisdictions charge real estate property taxes at the state, county and local level, often including a school tax component.  Most of those taxes are based on the assessed value of your home, and is expressed as a rate, say $1.50 per $100 of assessed value of your house.

So, in this particular example, if your house was assessed at $400,000 the taxes would be $400,000/100*$1.50 or $6000 per year.

Normally home values in each town are re-assessed once every several years up to ten years.  So as inflation causes house prices to go up, and the properties have not been reassessed, the local jurisdictions make less money than they “deserve”, if you can believe that!

To counter that each year, some jurisdictions do an “adjustment”.  As they need to charge everyone in the jurisdiction at the same rate, they charge all people equally based on some percentage of the assessed value.  So, immediately following a jurisdiction wide re-assessment of housing values, the rate will go down (i.e. $1.50 per 100 in the previous example) but it will be based on 100% of the assessed value of the house and property, because it was just re-assessed.

In year two or more after the assessment, where the house and property has not be reassessed but continue their upper climb in value, certain jurisdictions will charge the rate (i.e. $1.50 per 100 in the previous example) based on some percentage of home’s value over 100% of the assessed value, say for example 104% of the assessed value.

What that would mean is that a $400,000 assessment from prior year might be converted to $416,000 as a value basis to what you will be charged tax on ($400,000 * 104%). So, in this example, assuming the tax rate stayed the same at $1.50 per $100 of assessed value, then the calculation would be $416,000/100*$1.50 = $6,240 taxes per year. Normally when the percentage of assessed value goes up, the rate stays the same or goes down.

You simply can’t make this stuff up!!  It’s the government; it’s the law, so it has to be complicated, doesn’t it?

Right about now you are probably saying to yourself, this blog is so boring, why the hell is he telling me all this stuff, right?

Well we are concentrating on reducing expenses, aren’t we?  Yes, we are which is exactly why I went through this entire, painfully long, explanation.  You see, you have the right, once every several years based on the jurisdiction, to contest the assessed value of your home and property.

You have absolutely no right to contest your tax rate, unless of course you could prove that you are being singled out with a special rate for you only, which is not likely. The tax rate is the rate, that’s it.  You can, however, contest what the jurisdiction is calling the assessed value of your house. In the present state of the economy, your house could be worth less than what the jurisdiction estimates its worth, or worse, less than you paid for it.

There are two approaches here.  The first is that based on sales of similar properties in your area, with similar homes, square footage, number of bedrooms, number of bathrooms, acreage, etc. that your home is assessed improperly because similar homes are selling for less than the assessed value. The second approach is to contest that your home’s assessed value is inaccurate based on the assessed value of other similar homes in your area.

If you have done your homework, and found similar houses with similar properties in your neighborhood that are assessed at or sell for significantly less than your house is assessed at, you are free to complete the paperwork and contest your assessment.  There are rules around how often you can do it etc. but it can and is done.  Sometimes they find out that they thought you had 3 bathrooms, and you only have 2 and other material mistakes in the assessment process.  If you can prove your point, your taxes will be reduced.

Now keep in mind, there is an upside risk too.  If you haven’t done your homework well, and you contest your assessment, and it turns out you have 5 acres, and your neighbor has 1 ½ acres, your assessment and therefore your taxes could go up upon you contesting it.  However, as long as you’ve done your homework, this is not likely to happen.  The local jurisdictions see many of these actions of contest, especially in hard economic times, so it is unlikely that there will be a retaliatory action simply because you contested it.

Many jurisdictions actually place the assessed value of all housing and the tax assessments on the web, so everyone is free to compare.  Go for it! You might just reduce your real estate taxes.