When youâ€™re calculating how much home you can afford, donâ€™t forget to factor in property taxes.
This annual bill is one of the most important expenses tied to homeownership, but it might not always be top of mind. Property taxes are one of the primary ways your local government funds itself, and your city or county can even foreclose on your property if you donâ€™t pay on time.
That means property taxes are vitally important to your mortgage lender as well â€” so much so that you probably have an escrow account set up to make sure your tax bill is covered on your behalf.
Property tax rates vary from state to state, and some places have jaw-dropping tax burdens â€” including several statesÂ in the Northeast region. Keep reading for a breakdown of the states with the largest average property taxes for homeowners.
Property taxes are fees levied on privately-owned property such as real estate and vehicles, with the amount charged depending on the propertyâ€™s value. Property taxes are generally the primary source of revenue for state and local governments, and support several government services including the local school district, public safety departments and road maintenance.
Each state has its own set of property tax guidelines; however, property taxes are calculated by taking a percentage of the propertyâ€™s value, called the assessed value, and multiplying it by the local tax rate. The tax assessor is the person who determines each property ownerâ€™s tax bill.
If you still have a mortgage, you likely are paying a portion of your taxes each month as part of your mortgage payment, which goes straight into your escrow account. When your tax bill comes due, your mortgage lender pays it for you.
Annual homeowner tax bills across the U.S. range from an average of $684 in Alabama to $8,485 in New Jersey, according to an analysis from the National Association of Home Builders (NAHB). As mentioned previously, property taxes are based on a percentage of a homeâ€™s value, multiplied by the local tax rate, which can explain the wide variation in tax bills.
Take a look below at the 10 worst states for property taxes. Weâ€™ve highlighted the NAHBâ€™s data on the average amount of taxes paid each year in these states, as well as the average effective property tax rate, which can be expressed either as a percentage of a homeâ€™s value or a dollar amount charged for every $1,000 of a homeâ€™s value.
Weâ€™ve also included the median home values in each state, according to data from the U.S. Census Bureau.
Use the map below to check the average annual property tax bill in your state and how it stacks up against the others.
Youâ€™re responsible for paying property taxes as a homeowner, no matter the amount. Fortunately, you might be able to lower your tax bill, which could also lower your monthly mortgage payment.
If youâ€™re able to take action to reduce your property taxes, this can also lead to a slight reduction in your overall mortgage payment.
Consider these three tips to lower your property tax burden.
Check with your local tax authority about any available tax breaks you might qualify for, such as a homestead exemption, which reduces the taxable amount of your homeâ€™s value. For example, if your home is worth $250,000 and you receive a $50,000 exemption, your property tax bill would be based on a $200,000 value.
If you believe your home has been overvalued by your local tax assessor, you have the option to appeal your assessment. Reach out to your local tax authority for information on how to file an appeal. The National Taxpayers Union Foundation also has a checklist to help you get started.
The rules have changed, but you might still qualify to deduct your property taxes on your tax return. Before the Tax Cuts and Jobs Act (TCJA) of 2017, taxpayers were able to deduct the full amount of the state and local taxes, including property taxes, they paid in a given year. Under the TCJA, there is now a $10,000 limit imposed on the deduction of state and local taxes.
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