As a homeowner, it’s crucial to have a clear understanding of property taxes and tax assessments, as they are a regular part of your financial responsibilities as a homeowner. While these terms are often used interchangeably, they have distinct meanings and purposes.
In this article, we explain the differences between property taxes and tax assessments and how they influence your property tax liability.
Property Tax: An Overview
Property tax is a recurring tax levied on real estate by local governments to fund public services such as schools, roads, and emergency services. The amount of property tax you owe is determined by multiplying the assessed value of your property by the local tax rate. Property taxes are typically collected annually or semi-annually, depending on local regulations.
What is a Tax Assessment?
A tax assessment, on the other hand, is used to determine the value of a property for taxation purposes. Assessments are conducted periodically, often by local assessors or assessment agencies, and serve as the basis for calculating property taxes.
Assessments take into account factors such as property size, location, amenities, market trends, homestead limitations, and exemptions.
It is important to note that property assessments do not always reflect the market value of a property. Market value refers to the sale price of a property in a fair and open market.
Discrepancies between appraised value and market value can occur due to various factors, such as outdated assessments, changing market conditions, different use types, or differences in appraisal methodologies.
How Does a Change in Appraised Value Affect Property Taxes?
Understanding the relationship between assessment changes and property taxes can be complex. In some cases, an increase in your property’s appraised value may result in a higher property tax bill. This can happen if the local tax rate remains constant or increases.
Conversely, a decrease in appraised value may lead to a reduction in your property tax liability if the tax rate remains unchanged. But if the tax rate increases, you could potentially pay more in property taxes, even if your value decreases or stays the same.
Changes in assessed value do not always translate into changes in property tax rates. Local taxing authorities can adjust tax rates to compensate for assessment changes, aiming to maintain a consistent revenue stream for public services. These taxing authorities are not the same entities that conduct assessments.
Why It’s Important to Understand the Differences
Differentiating between property taxes and tax assessments is vital for homeowners seeking to navigate their tax liability. Property taxes are the actual taxes owed, based on the home’s taxable value. Tax assessments, on the other hand, are the periodic property valuations conducted by a city or county assessor.
People commonly refer to protesting their property taxes. But remember, it is the assessment that homeowners must protest to avoid overpaying property taxes to the government.
If you think your property tax rates are too high, the only way to change them is through elections.
By understanding these distinctions, homeowners can better anticipate and manage their property tax obligations, and save on their property taxes.