If you own property in the United States, odds are very likely that you pay some sort of property tax. This tax is very standard across the jurisdictions that make up the USA. Property taxes can be placed upon real estate as well as other forms of personal property. If you have property with value of just about any sort, it is probably subject to property tax.
Understandably, the realm of property taxes can be a little confusing if you are new to them and understanding how they are calculated. Throughout this page, we will cover everything you need to know. Starting from the basic background information and history of property taxes through modern dilemmas which will need to be handled in the near future.
Table of Contents
Property Taxes in the USA
Important Background Information
What Properties are Subject to Tax?
What Properties are Exempt?
Brief History of Property Taxes
Property Taxes Go Back to Colonial Times
Pre-Civil War Tax Rates Were Uniform
Income and Sales Tax Came Later
Modern Property Taxes Came About Following the Great Depression & WWII
Main Programs Financed by Property Taxes
Water & Sewer
Public Schools
Law Enforcement
Fire Protection Services
Roads & Highways
Libraries & Other Public Services
Important Figures for Calculating Property Tax Rates
Millage Rate
Assessment Ratio
Assessment Value
All About How Value is Assessed
How is Property Value Determined?
Neighboring Property
Recent Sales Data
Amenities on the Property
Data from the County Assessor
Replacement Cost Estimates
Income Earned from the Property
Appeals & Reviews
Limits to Property Increases are Often in Place
Values are Usually Determined on a Consistent Basis
How the Property Assessment Process Works
Remember that Jurisdictions Have Different Rules
1. Assessor Comes and Determines the Value
2. Typical Processes for Determining Value are Used
3. You Receive a Notice
4. You Have the Right to Discuss the Value
5. You Can Appeal & File Tax Grievances if Necessary
Popular Opinions On Property Taxes
Property Taxes are Regressive
Should Help Encourage Growth, Not Inhibit It
Different Methods for Reducing Impact on Urban Growth
1. Urban Growth Boundary
2. High-Density Housing
3. Tax Exemptions
4. Land Value Tax
5. Current-Use Assessment
6. Conservation Easements
Modern Dilemmas with Property Taxes
Exemptions for Multiple Homes
Different Tax Rates Across Counties
Unfair Value Assessments
Modern Policies We have Noticed
Need Help Getting Fair Property Tax Rates in Long Island?
Important Background Information
Property tax is enforced at the level of local jurisdictions. The federal government is typically only concerned with capital gains taxes that come from the sale of a property. When we look at property taxes, these are done annually based on your home’s value and the laws of your local jurisdiction.
In order to avoid failure to adequately report the value of their home, jurisdictions typically have their own team for handling value assessments. This way, local programs and benefits such as schools can be funded through the use of property taxes.
Since many people are rightfully suspicious of the county government’s ability to assess the value of private property fairly, there are also steps in place to allow property owners to challenge the assessment values. Typically, the exact amount you need to pay for property tax will depend on your local millage rate, assessment ratio, and overall assessed value.
What Properties are Subject to Property Tax?
One common misconception that people have regarding property taxes is that they are not only applicable to traditional real estate. Those who purchase commercial property also will have to pay property taxes. Other property that isn’t land can also be subject to property tax.
What Properties are Exempt?
Not all properties in the United States are subject to property tax. Just as various organizations are exempt from other taxes, property taxes are no exception. These can include educational, religious, and/or charitable organizations. If you want to avoid property taxes, having property owned by an organization of this sort can help you do so.
Brief History of Property Taxes
The first-ever tax record found by modern archaeologists dates back to 6000 BCE. Archaeologists found soil tablets in the ancient city-state of Lagash that described property taxes. Since then, successful empires including ancient Egypt, Greece, Rome, and so on, took place. It seems that there is a correlation between property taxes and successful civilizations.
Property Taxes Go Back to Colonial Times
In the United States, we also have had property taxes since around the beginning of our nation. However, these did not take place until after we switched our federal government focus away from the Articles of Confederation towards the modern US Constitution. By 1796, we had property taxes in place across almost all of the colonies. Delaware, however, was a noteworthy exception. Instead of taxing property, they would tax income gained from it.
Pre-Civil War Tax Rates Were Uniform
Before the Civil War, there was a unifying statement made that echoed the federal property tax policy: “the taxation of all property, movable and immovable, visible and invisible, or real and personal, as we say in America, at one uniform rate.” This would be something that stayed in effect until the post-Civil War period where the economy switched gears and required further clarification.
Income and Sales Tax Came Later
As America entered the modern area, one thing which started to become apparent was the value of stocks and other impalpable property. To stay up with trends and keep tax revenue coming in despite new forms of property like these, things like income and sales tax came into mainstream adoption. Today, we still have many of these original measures in place in various jurisdictions.
Modern Property Taxes Came About Following the Great Depression & WWII
With the Great Depression and the economic downturns that came about as a result of war, many local jurisdictions found it fitting to lessen the burden of property taxes. Many places even exempted citizens from having to pay them. Especially towards veterans who went overseas to fight for our freedom. Once the USA and the Allied Forces rose victorious in WWII, modern property tax policy which we still see today came into full effect.
Main Programs Financed by Property Taxes
One of the common questions people have when they learn about property tax is what the government does with all this money. If you add up all the property that exists in a particular area and consider the local property tax rate, you will come up with some pretty astronomical numbers.
To be clear, the money garnered from property taxes doesn’t just go down the drain of government bureaucracy without producing things of inherent value. Specifically, programs that were voted into existence by the citizens themselves and signed off at the local level with full knowledge of the taxes that would take place. Below, we will break down the main programs financed by property taxes.
Water & Sewer
If you have running water and a sewage system in place in your local jurisdiction, you can thank property taxes for financing this. Many people would be otherwise left speechless as to how they can secure running water and sustainably handle waste without these programs. They also help construct uniform infrastructure that stretches across the continental USA despite being financed by different localities.
Public Schools
Not too long ago, we decided that every child should have a right to education. To do this, we needed to secure funding in order to construct schools, pay for the teachers, administrators, maintenance, and so on. If you went to a public school and/or have children currently enrolled in public school, your annual property taxes will be the ones to thank.
Law Enforcement
We all know how important it is to have order in our society and be able to walk the streets of the United States in peace. This wouldn’t be possible if we didn’t have public servants ready to put their lives on the line for our safety. Local law enforcement receives their paychecks and funding from our property taxes. Therefore, they are truly working directly for you and your family.
Fire Protection Services
It only took us a handful of fire disasters to realize how important things like building codes and fire departments are. Not to mention, access to fire hydrants at all major parts of a city. If you ever call the fire department and have them assist you, know that you have already paid for their service. Your annual property taxes are the main reason that they even exist in the first place.
Roads & Highways
Want to take a road trip across the USA? If so, you will likely use the public highways. We have come a long way since the use of the Oregon Trail. Today, vehicles can travel at fast speeds all across the United States thanks to highways. Best of all, what keeps them maintained and in good shape are your annual property taxes. It is also fair, then, for you to expect your local government to keep your roads and highways freshly paved and in good shape.
Libraries & Other Public Services
Libraries are a staple of any civilized society for their great ability at educated the population. If it weren’t for libraries, it would have been very difficult for humans to make it as far as we have. They are a store of knowledge that is priceless. These and other public services are paid for by your annual property taxes.
Important Figures for Calculating Property Tax Rates
When in the process of estimating your property taxes, it’s important to know the process for how they are calculated in the first place. For your reference, we will cover all the important figures that you need to keep in mind while you are planning out your yearly property taxes. If you have a new home, you will need to find the exact rates for each of the following figures in your local jurisdiction.
Millage Rate
One of the most important figures to keep in mind when you are determining your property taxes is the local millage rate. The millage rate is the number of dollars per each $1000 in your property’s value that is eligible for taxation. For example, if you have a millage rate of 10, then you will need to pay 1% of your property’s assessed value in tax season.
Assessment Ratio
Your local assessment ratio is another figure that you will need to be aware of if you hope to have your property tax estimation on track. This is the ratio of the home value that the official appraisal assessor will use to eventually leave you with a property tax bill. If you have a lower assessment ratio, this is seen as better since you will only have to a portion of your home’s market value in property taxes.
Assessment Value
Typically, each year a county assessor will come and determine the value of your home. If your home has a higher value than the previous year, you should also expect to pay a slightly higher property tax. This is because the most important figure when calculating your property tax is the main figure that you need to calculate property taxes. If you want to estimate your incoming taxes for this year, be sure to pick up your property card from your local assessor’s office.
All About How Value is Assessed
You would think that the easiest way to determine your home’s value is to simply list the amount that you initially paid for it. However, this data is only viable in the short-term. For your reference, let’s go ahead and look at how your home’s value will typically be assessed.
How is Property Value Determined?
There are many different ways that a property’s value can be determined. In the United States, there is a pretty specific routine that needs to be followed. As we will explore below, various things are considered when determining property value. Since this matter is directly concerning to county authorities who depend on property taxes, there are various checks to ensure the quality of assessments.
Neighboring Property
One of the easiest ways to determine the value of a property is to look at neighboring properties of similar size and amenities. If you have a 3-BR home with a 100 square-foot background, for example, a home in your area with these specifications will probably end up having a similar value to your home. However, those with extra amenities such as a pool, extra bedroom, and so on, will notice that their property is slightly more valuable.
Recent Sales Data
When you purchase a home, this is a direct record of how valuable it is. Therefore, this data might also be used by your county for your home’s value assessment. However, this typically won’t be viable years down the line. What we find is that home values tend to go up as time progresses. For this reason, a county assessor will only place your value according to recent sales data that isn’t several years old.
Amenities on the Property
As we briefly mentioned, having above-average amenities on your home such as a swimming pool will result in higher value assessments. Therefore, those who want to minimize their property tax rates should avoid investing too much into their property. Instead, remodeling and investments should be done sparingly to avoid sudden spikes in your property’s value.
Data from the County Assessor
If you are looking through information like how adding new amenities to your home can increase value and wondering why this is your answer. Typically, you will have a county assessor come over and view your property to assess the value. Therefore, if you do improvements after the assessor leaves, you can expect them to come back, notice these things, and then increase your value assessment. In turn, your property taxes also go up.
Replacement Cost Estimates
One of the ways that property values can be assessed is by determining how much it is estimated to cost for the building. Therefore, in the event that the property would be destroyed, there is a specific number on file that is roughly what it would cost to rebuild your property. If the original cost of a property is used, it is typically required to be adjusted consistently to account for inflation.
Income Earned from the Property
If a particular property generates some sort of income, this will automatically start to increase the property’s overall value. The current and future expected income streams can be used as factors in helping this calculation. However, this is not a typical approach when we look at real estate property where the owner simply lives on the property and doesn’t generate income from it.
Appeals & Reviews
Sometimes, the value that is placed on a property is not in alignment with what the owner has in their records and calculations. This is often due to an inherent conflict of interest where a county official comes and assesses your home’s value trying to increase tax revenue for the jurisdiction. For this reason, property owners have the right to appeal their value and present data to back up their case.
Limits to Property Increases are Often in Place
As we mentioned, property values tend to increase over time due to natural factors such as improvements and inflation. However, spikes in value can be very detrimental to property owners expecting to only pay a particular figure each year for property taxes. For this reason, there are sometimes limits put in place by local jurisdiction as to how much a property value can increase.
Values are Usually Determined Consistently
Property values will never stay stagnant. Jurisdictions will have their own rules in place for how consistently the value needs to be reassessed. Sometimes, this is done every year, three years, or even 5 years. This all depends on the rule put in place by your local county.
How the Property Assessment Process Works
When people learn that they have their property on file with the county, that there is an official property card with their home’s value, and so on available, they might immediately start to wonder how this process works in the first place. In order to help you understand what to expect as a new homeowner or one that wants to minimize their property taxes, let’s go ahead and discuss all that you need to know about the property assessment process.
Remember that Jurisdictions Have Different Rules
Right off the bat, it’s important to remember that different jurisdictions will typically have different rules. Therefore, we will do our best to describe this process in a universal manner. Since we are based in Long Island, though, much of the information presented here might be geared more towards residents of either Suffolk or Nassau County.
- Assessor Comes and Determines the Value
Every year or so, your property will be up for re-assessment. When this happens, you will typically receive a notice that the assessor would like to come by and enter your home. Although there is no law stating that you must let them enter, it is typically suggested to let them do so since this will be one of the ways that you can ensure a fair and realistic assessment. If you force the assessor to cut corners and make some guesses, it can result in a much higher property value than you expect. - Typical Processes for Determining Value are Used
When we broke down the processes for determining the value above, we did this so that you can have an idea of what to expect when the assessor comes. Keep in mind each of these processes so that you can anticipate and plan for the assessor’s visit. If you want to finish your basement or buy new appliances, for example, try to do so after the assessor leaves to avoid pre-mature impacts on your property taxes. - You Receive a Notice
Once your property value has been determined, you will usually receive a notice of this occurring. When this happens, it’s important not to discard this notice as it will have an immediate impact on your property taxes. In most cases, you will simply need to look at the value and confirm that it matches what you were expecting. If it doesn’t, then you will likely need to spend time doing the steps described below. - You Have the Right to Discuss the Value
In just about any jurisdiction across the United States, owners are given the right to discuss their home’s valuation with the tax assessor. Therefore, you must do checks on your home’s assessment. Consider getting a private appraisal done, comparing market value, and using all of the same strategies we have mentioned on this page for determining your home’s value. This way, you can be proactive and hopefully avoid needing to take further action. - You Can Appeal & File Tax Grievances if Necessary
If your home’s value is simply too high and you have no idea where to turn, hiring a team such as Heller & Consultants Tax Grievance is a good option to formally get your property taxes lowered through an appeal. Once you get your property assessment appealed, you can then get the proper tax grievances that you deserve. This way, you will only pay what you owe in property taxes rightfully. Not the exaggerated amount that the assessor would have otherwise forced you into.
Popular Opinions on Property Taxes
In the modern area of property taxes, we have noticed quite a bit of new opinions and trends. As we have developed systems that continue to improve, there is an influx of opinions both old and new on this system. In order to develop a full view of how property taxes in the USA work, it’s important to also take a step back and know these popular opinions.
Property Taxes are Regressive
If you are somebody who has less income and overall capital than, say, a billionaire, then you should expect to pay a lot less in proportion to what they do. As such, some people see that this is the case when it comes to property taxes.
However, those with old homestead land that dates back generations in their family also have reported paying higher property taxes due to higher property values. This is also burdened by the fact that they don’t make a lot of income from the land.
For this reason, many people see property taxes as being overly regressive. If you are a poor landowner who owns valuable property, you can theoretically be forced to eventually sell your land to avoid high amounts of property tax.
Should Help Encourage Growth, Not Inhibit It
When property taxes were first developed, the idea of having property taxes in a manner that still promotes healthy urban sprawl was important to lawmakers. In their eyes, they wanted both wealthy and lower-class property owners to have a fair tax rate.
The problem with good intentions, though, is that it doesn’t always align with what ends up occurring. This is why we have noticed plenty of different strategies for reducing the impact that property taxes have on urban sprawl.
Different Methods for Reducing Impact on Urban Growth
Lawmakers have long wanted property taxes to be done in a manner that still will help promote urban growth. After all, if property owners are forced to pay high loads of property taxes, they might end up like some of the poorer farm owners mentioned above and be confronted with an ultimatum to either sell the property or go into debt to pay their taxes.
However, the reality is that lawmakers want to reduce negative impacts on urban growth. This way, the United States can keep anticipating lots of growth from private landowners. Otherwise, the system will have taxes that are too high to promote growth. Below, we will cover some of the techniques that have been used to reduce the negative impacts of property taxes on urban sprawl.
- Urban Growth Boundary
One of the ways that growth can be focused on urban centers is when urban growth boundaries are put into place. Essentially what this does is put boundaries in place forcing investors to look towards land that is already under heavy development. Usually, an urban growth boundary will come along with a deadline. In this case, the deadline will have to be reached before development can occur. - High-Density Housing
If investors were left to do as they will, they would sometimes suck up all the good land in urban cores, leaving the lower class out of the equation. If this were to happen without intervention, urban cores would be heavily gentrified to the point where the lower class is forced to leave altogether. For this reason, high-density housing is often forced onto smaller lots. - Tax Exemptions
Property such as farms, ranches, and areas that would otherwise be very expensive to own for property taxes are often given special exemptions. If this didn’t occur, many important actors in the USA economy would be unable to afford living where they do. Depending on your locality, you will usually have access to some sort of exemption for these sorts of property. - Land Value Tax
A land value tax is a method for separating a property’s value into different components such as the value of the amenities and improvement along with the land itself. Depending on the jurisdiction, there will be lower tax rates given on one of these components. Typically, the land value is the one with the higher tax rate. This makes this sort of tax great for those who want to heavily improve the lot. - Current-Use Assessment
When the current-use assessment is put into play, how the property is currently being used is the most important factor looked at for assessing a property’s value. Therefore, those who have property in urban centers that are generating lots of income will have to pay higher property tax rates than those who are humble homeowners with no income from the property itself. - Conservation Easements
When property owners live in an area where development and investment are put in place as a means to increase the property value, they can put conservation easements in place to restrict any sort of development on the land. This usually ends up keeping the value of the property at a reasonable level, lowering tax rates, and helping the owner keep development and investment away from being calculated as a factor in their property’s value.
Modern Dilemmas with Property Taxes
Just like many other government systems, there can be problems that run into the system of property taxes. Although the intentions and goals are usually pure, the reality of the system will sometimes play out a little differently than expected. Below, we will break down some of the modern problems we find with the current system of property taxes.
Exemptions for Multiple Homes
As we mentioned briefly throughout this page, various exemptions can be taken advantage of as property owners. This way, you can pay the lowest amount of property taxes possible. However, one modern dilemma that we have noticed is people filing exemptions for multiple homes when they are not rightfully able to do so. Typically, exemptions that are typically allowed will only apply to the first home.
Different Tax Rates Across Counties
If you live in Long Island, you are paying a much higher tax rate than those who live in a small town in Alabama. This is because tax rates are determined by local counties and not the federal government. Although many people might see this as a good thing, they probably also live in one of the areas with lower property taxes. Those who happen to live in a place like Long Island, though, are expected to pay disproportionately higher tax rates.
Unfair Value Assessments
As we have briefly mentioned, there is an inherent conflict of interest when you have somebody who works with your local jurisdiction being the one with the final say on what your property value is. For this reason, we have noticed that many people do end up with higher property taxes than what would be acceptable and normal. This is also forcing people to secure justice using the system of tax grievances.
Modern Policies We Have Noticed
As we have explored, there are certain problems that people face with land becoming more and more expensive. For example, people who secured property for lower rates and keep the land in their family for generations can often run into tax spikes.
Gentrification, for example, has caused many properties that were once very affordable to own and pay property taxes for to force owners into new areas. For this reason, some states provide homestead exemptions that limit the percentage increase in tax. This way, old owners still get to enjoy the land of their families without expecting huge tax increases.
One of the ideas presented for securing more property tax revenue for the federal government is to bring back an old pre-Civil War system where states sent a percentage of their property tax revenue to the federal government. An action such as this would require lots of states to make deals and laws to be passed.
However, capital gains taxes are something that generally falls into view when a property owner sells their land. These are separated into short and long-term gains. If you own property for more than one year, you can secure access to the lower rates of long-term capital gains tax. Notably, cryptocurrency has recently been included in the types of property that are subject to capital gains tax.
Need Help Getting Fair Property Tax Rates in Long Island?
If you are in Suffolk or Nassau County in Long Island, you know very well how expensive it can be to pay property taxes in this part of the country. Sadly, many people are being forced into paying exorbitant tax bills. If you need assistance in appealing your property’s value and getting a better rate on your property taxes, give us a call in Nassau County: (516) 342-4849 or in Suffolk County: (631) 302-1940. We will not charge you a single penny until we secure you a lower tax rate.