Taxes are nobody’s favorite thing, and most of us would rather just not think about them. But they are an important part of home ownership and need to be a consideration as you begin the home buying process. Many first-time home buyers who are unfamiliar with the details often wonder, “How are property taxes calculated, how do I pay them and how often?” To help you navigate what can seem like a complex and difficult issue, here’s everything you need to know about property taxes.
How are Property Taxes Calculated?
Property taxes are calculated by assessors who determine the value of the property — including the land and any structures on it — before applying the appropriate tax rate as set by local government entities. “Generally, every city, county, and school district each have the power to levy taxes against the properties within their boundaries,” according to Investopedia. All of those rates are then combined to create the total tax rate you pay for your property. The tax rate is sometimes referred to as the mill levy or millage tax.
Property tax rates can vary wildly from one jurisdiction to the next and can change over time. So, when buying a home, you need to be aware of what the local tax rate is and then stay up-to-date on any proposed changes or new laws that could affect your property. It’s also important to note that different types of properties are often taxed differently. So, the way property taxes are calculated for a vacant lot would likely be different than a single-family home or a multi-family property like a duplex. Keep this in mind as you decide what kind of home to buy.
Because property taxes are based on the value of your home, the amount you pay could change even if the tax rate doesn’t. Generally, assessors will either evaluate your home value every year or every five years, depending on where you live. Consider this as well when budgeting for the future as this can help you determine how much house you can afford.
Paying Your Property Taxes
There are generally two ways to pay your property taxes. You can either roll the cost into your monthly mortgage payment, or you can pay directly to your local tax office.
If you include the cost in your mortgage payment, your lender will divide your estimated tax bill by 12 months and simply add on the cost. Because this is an estimate, you could receive a refund or have to pay a little extra at the end of the year.
If you want to pay directly, you’ll have to contact your local tax office to determine your options. Sometimes you can divide your bill into monthly or biannual payments, or you may have to pay once a year. Many tax offices will also accept a variety of payment methods, but again, you’ll have to see what is available in your local area.
When it comes to taxes, don’t concentrate only on the payments. Try to think about the big picture because there are also tax benefits of owning a home that can be spelled out further by a tax professional.
Are My Hero Rewards Taxable?
When you buy a home with Homes for Heroes, you’ll automatically receive a check after closing for 0.7% of the purchase price. On average, heroes save $2,400 when buying a home through our program. We call these our Hero Rewards and they are just a small thank-you for everything heroes do for our communities.
Many people just pay their property tax bill and move on. But by asking yourself, “How are property taxes calculated?” you’re already putting yourself one step ahead. This information will help you be more prepared should the local tax rate change or the value of your home fluctuate. By arming yourself with the best information and consulting with a tax professional about your individual property, you can successfully navigate property taxes and enjoy all the tax benefits of owning a home.
Want to save money buying or selling a home? Register with Homes for Heroes today and you’ll be automatically matched with a real estate specialist in your local area.