We’ve had a lot of questions from clients this year about property taxes. It is no surprise that housing values have fallen over the past few years. What has come as a surprise to many is why property taxes have not.
Q: My home’s assessed value went down this last year, but my property tax payments actually went up. How is that possible?
A: Property tax math is a funny thing. The most important question when determining how much you might pay is how your property’s value changes relative to the area average change in value.
The government is limited in how much it can raise taxes from year to year. The total amount collected for property taxes can increase only by the lesser of 1% a year or the amount of inflation (additional increases, such as levies must be voter approved). It is rare to see the total amount collected actually go down.
Once the government determines the total amount it is going to collect from property taxes, it then apportions that amount across the property owners in the county based on property values. This is why it is important to know where your value change stands relative to the average change in the taxing area.
If your property value falls more than the area average, your share of taxes paid will be less. In this case, you could be paying less than the previous year. However, if your property value fell less than the area average you will pay more in taxes.
Q: Why is my tax assessed value so much different than the values of homes I am seeing sell in my neighborhood today?
A: Property tax assessed values for the current year are not based on today’s market value. Instead, assessed values are determined on January 1st of the year before the tax year. For instance, the taxes you are paying in 2010 are based on an opinion of your property value set on January 1, 2009. That means the assessor was reviewing 2008 property sale prices. The sales that are happening today will impact your assessed values in 2012.
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