Property tax assessments and appeals

Property taxes fund many local services, including schools, roads, emergency services and parks. For most homeowners they are a recurring cost that rises and falls over time, often collected through a mortgage escrow account. Because the amount you owe depends heavily on the value your local assessor assigns to your home, understanding the assessment, and knowing that you may be able to challenge it, can matter a great deal.

How property taxes are typically calculated

The details vary by state, county and municipality, but the general approach is similar in most places. A local assessor estimates the value of your property. That value may then be adjusted by an assessment ratio, which some jurisdictions use to tax only a portion of market value. Any exemptions you qualify for are subtracted. The result, often called taxable value, is multiplied by the combined tax rate set by the various taxing authorities that serve your address, such as the county, city and school district.

Tax rates are sometimes expressed as a millage rate, which describes the tax owed per unit of taxable value. Because rates and assessments are set separately, your bill can change even if your assessment does not, and vice versa.

Assessed value and market value

Assessed value and market value are not always the same thing. Market value is generally what a willing buyer would pay a willing seller. Assessed value is the figure used for tax purposes, and depending on local law it may be a fraction of market value, may be limited in how quickly it can rise each year, or may lag behind recent sales. Some states cap annual increases in assessed value for primary residences, which can create gaps between assessed and market value over time.

Exemptions that may apply

Many jurisdictions offer exemptions that reduce taxable value. Eligibility and application rules vary widely, and some must be applied for rather than granted automatically. Examples may include:

• Homestead exemptions for a primary residence.
• Exemptions or freezes for older homeowners.
• Exemptions for veterans, particularly those with service-connected disabilities.
• Exemptions for homeowners with disabilities.
• Agricultural or conservation classifications for qualifying land.

If you have recently purchased a home, check whether you need to file for a homestead or similar exemption. Missing a filing deadline can mean paying more than necessary for a full tax year.

Reading your assessment notice

Assessment notices typically arrive on a schedule set by your jurisdiction. They usually show the assessed value, any exemptions applied and, importantly, the deadline for filing an appeal. That deadline can be short, so it is worth reading the notice as soon as it arrives.

Next, look up your property record card, which many assessors publish online. Check the basic facts: square footage, lot size, number of bedrooms and bathrooms, the year of construction, the condition rating and any listed improvements. Errors in these details are among the most straightforward grounds for a correction.

How appeals generally work

The appeal process differs by jurisdiction, but it often follows a similar path:

• An informal review, where you contact the assessor's office to discuss the value and point out errors. Some disputes are resolved at this stage.
• A formal appeal to a local review board, sometimes called a board of equalization or board of review, where you present evidence.
• Further appeals to a state-level body or court, if you disagree with the board's decision.

Useful evidence may include recent sales of comparable homes nearby, photographs showing condition problems, contractor estimates for needed repairs, or a professional appraisal. The strongest comparisons are usually homes that are similar in size, age, condition and location and that sold close to the assessment date your jurisdiction uses.

How changes flow through escrow

If your lender pays property taxes from an escrow account, a change in your tax bill typically leads to an adjustment in your monthly payment after the servicer's periodic escrow analysis. An increase may produce a shortage that needs to be repaid, while a decrease may produce a surplus or a lower payment. Your servicer should send a statement explaining any change.

A note on deductions

Property taxes on a residence may be deductible on a federal return for taxpayers who itemise, but the deduction for state and local taxes is subject to a cap set by federal law, and that cap has changed in recent years. State rules differ as well. Because tax treatment depends on your full financial picture and on current law, confirm the details with a tax professional before relying on any deduction.