Property Tax Laws: An Overview

Property taxes generate a substantial portion of local government revenue nationwide. In 2020, property tax collection amounted to nearly $600 billion. While this revenue contributes to vital services and infrastructure development within local communities, getting your annual property tax bill can feel intimidating. Understanding the intricacies of property tax laws is crucial for property owners to ensure compliance, manage their financial obligations, and navigate potential challenges. 

This article will explore various aspects of property tax laws in the United States, exploring assessment methods, tax rates, exemptions, and appeals. By demystifying these laws and regulations, we aim to empower property owners with the necessary knowledge to make informed decisions regarding their properties.

Taxation Authority

Local governments, such as counties, cities, townships, and school districts, primarily levy property taxes. The specific authority responsible for assessing and collecting property taxes will depend on your jurisdiction. These local entities can impose property taxes within their geographical boundaries.

Property Tax Assessment

When it comes time to determine the value of a property for taxation purposes, most local governments use a combination of the following methods to assess property taxes. 

Market-based Approach

This approach compares the property being assessed to similar properties in the same area that have recently been sold. The assessor analyzes factors like size, location, amenities, and condition to estimate the property’s value.

Income-based Approach

Primarily used for commercial or rental properties, this approach considers the income generated by the property. The assessor analyzes rental income, operating expenses, and prevailing market capitalization rates to estimate the property’s value.

Cost-based Approach

This approach estimates the property's value based on its replacement or reproduction cost. The assessor considers land value, construction costs, depreciation, and current building code standards. 

Property Tax Rate

Once the property value is determined, the tax assessor will notify you as the property owner of the assessed value. This is usually evaluated per the local taxation authority's budgetary needs, including schools, police and fire departments, road maintenance, parks, and other local infrastructure and services. The taxation authority determines the total amount of money it needs to raise through property taxes to generate the necessary revenue. This amount is referred to as the "total tax levy." The taxation authority then assesses the total value of all taxable properties within its jurisdiction, called the assessable base or tax base.

Next, it’s time to calculate the tax rate. The tax rate is calculated by dividing the total tax levy by the assessable base. The resulting ratio is multiplied by 1,000 to express the tax rate in mills (one-tenth of a cent). For example, if the total tax levy is $10,000,000 and the assessable base is $100,000,000, the tax rate would be 100 mills.

Once the tax rate is determined, it is applied to the assessed value of each property to calculate the property tax owed. For instance, if a property has an estimated value of $500,000 and the tax rate is 100 mills, the property taken would be $50,000. 

Property Tax Exemptions

Exemptions are often provided to reduce a property's taxable value for tax purposes. These exemptions vary by state and locality; the specific eligibility requirements and benefits can differ. Here are some common types of exemptions that may be available to you:

Homestead Exemption

This exemption benefits homeowners who use their property as their primary residence. It reduces the property's assessed value, thereby lowering the property tax liability. Homestead exemptions typically have eligibility requirements for residency, ownership, and other factors defined by the state or local jurisdiction.

Senior Citizen Exemption

Many jurisdictions provide property taxes exemptions for senior citizens. These exemptions are designed to assist older adults on fixed incomes. Eligibility criteria often include minimum age requirements and income limits.

Veterans Exemption

Some states offer property tax exemptions for military veterans or their surviving spouses. These exemptions recognize their service and can vary regarding eligibility requirements and benefits.

Disability Exemption

Certain jurisdictions provide property tax exemptions for individuals with disabilities. The exceptions may apply to homeowners who have a disability or to properties specifically adapted for accessibility. Eligibility requirements may include proof of disability and other conditions defined by the local jurisdiction. 

Agricultural or Farmland Exemption

Agricultural and farmland exemptions aim to support agricultural activities and encourage farming. Properties used for agriculture, such as crop production, livestock raising, or timber harvesting, may qualify for reduced assessments or special tax treatment. Eligibility criteria typically involve specific acreage requirements and evidence of agricultural use. 

Tax Collection

Property taxes are typically collected annually, but the specific due dates and payment methods can vary. Some jurisdictions allow taxpayers to pay the total amount upfront, while others provide options for quarterly or semi-annual payments. 

Failure to pay property taxes by the specified due dates may result in penalties and interest charges. Penalties and interest are added to the outstanding tax amount and can accumulate until the taxes are paid. 

Appeals Process

Property owners can challenge their property's assessed value if they believe it is incorrect or unfair. Each jurisdiction has its own procedures for filing an appeal, which usually involves providing evidence to support the claim of an inaccurate assessment. 

This evidence may include recent property appraisals, comparable sales data, property inspection reports, photographs, or any other relevant information that challenges the assessed value. 

Once the information is gathered, a formal appeal must be submitted to the appropriate authority. This is often a specific appeals board, assessment review board, or tax tribunal established by the jurisdiction. The appeal is usually made in writing and must include the following:

• The property owner’s contact information.

• The property details.

• The reasons for the appeal.

• The evidence supporting the claim.

After filing the appeal, property owners may be granted an assessment review or hearing. This provides an opportunity to present their case to the designated authority, including any additional evidence and explanations that can help further illustrate their point. 

Following the assessment or hearing, the appeals board will make a decision. The property owner will be notified of the decision in writing. The decision may include adjustments to the assessed value, property tax amount, or appeal denial. 

What Happens If I Don’t Pay Property Taxes?

Not paying your property taxes can have detrimental effects. Though the actual consequences may vary depending on the jurisdiction and the non-payment duration, some common outcomes may occur.

Penalties and Interest

As mentioned, most jurisdictions impose penalties and interest on overdue property taxes. These additional charges are typically calculated as a percentage of the unpaid amount and can accumulate over time until the taxes are paid. 

Tax Liens

When property taxes go unpaid for an extended period, the taxation authority may place a tax lien on the property. A tax lien is a legal claim against the property for unpaid taxes. The tax lien gives the taxation authority the right to collect the due taxes by selling the property or through other means specified by law.

Tax Lien Sales

In some jurisdictions, the taxation authority may hold tax lien sales or auctions to sell the tax liens to third-party investors. These investors pay the outstanding taxes on behalf of the property owner and, in return, gain a legal claim against the property, and, in return, gain a legal claim against the property. The property owner is then responsible for repaying the investor, typically with interest. 

Property Tax Foreclosure

If property taxes remain unpaid for an extended period, the taxation authority may initiate foreclosure proceedings. Property tax foreclosure is a legal process by which the taxing authority sells the property to recover the unpaid taxes. The exact foreclosure process and timeline can vary by jurisdiction. Still, it generally involves public notice, an opportunity for the owner to pay the outstanding taxes, and a public auction if the taxes remain unpaid.

Loss of Property Ownership

If the property tax foreclosure process is completed, the ownership of the property may be transferred to the new buyer who successfully bids for the property at auction. The property owner loses ownership rights, and the proceeds from the sale are used to satisfy the unpaid taxes and related costs. The remaining funds, if any, may be returned to the former property owner or held by the taxing authority. 

Do I Need a Tax Attorney if I Didn’t Pay Property Taxes?

Hiring a tax attorney can be beneficial if you're struggling to pay your property taxes. Tax attorneys specialize in tax laws and regulations, including those related to property taxes. Their in-depth knowledge of the relevant legal frameworks and procedures allows them to provide accurate advice and guidance tailored to your specific circumstances. 

To find a reputable tax attorney near you, visit our directory of qualified tax lawyers. The directory is searchable by metro area, making it simple to find a highly-rated professional to assist you in navigating your property tax challenges.