A Guide to Understanding Your Property Tax

04/08/2015 06:32 pm ET | Updated Jun 08, 2015

Homeowners across the United States pay taxes on their property to support a variety of local public services. Although millions of Americans pay property taxes each year, many misunderstand how their bill is calculated. We at The Appraisal Foundation also find that many people are confused about the difference between a tax assessment and a home appraisal.

We've put together some helpful information for you to better understand your tax assessment, how your bill is calculated, and what you can do if you disagree with your assessment.

What is a tax assessment?
A tax assessment is an opinion of value that is used as the basis for calculating how much a homeowner will pay in property taxes. The higher value given to a home, the greater a homeowner will pay in taxes. In nearly all cases, a tax assessment is based on the market value of a home.

Contrary to popular belief, a tax assessment is different from a home appraisal. Although a home appraisal also provides an opinion on the market value of a home, it has a different purpose. An appraisal is typically used to determine the value of the collateral for a home mortgage, as well as other purposes.

How is a tax assessment conducted?
The exact procedure a property assessor follows is dependent on state laws and regulations that govern assessment administration. However, generally speaking, an assessor's job is to organize a community's properties into different groups based on similar characteristics. He or she then analyzes comparable sales of those properties to determine an average sales price for each group, which becomes the basis for arriving at an assessed value. However, an assessor must also take into account individual aspects of a home to arrive at a final value, including square footage, geographic location, and renovations. Assessments are done on a regular basis to take into account changes in the value of properties.

Assessed value versus tax rate
Once an assessed value is reached for a home, municipal governments apply a predetermined tax rate formula to arrive at a homeowner's final property tax. This formula is designed to ensure that a community has enough revenue to fund all budgeted public spending.

Opportunities to appeal
If you disagree with your tax assessment, there are steps you can take to have it reviewed. However, it's important to note that you cannot contest your property tax rate, only the assessed value of your home. If you believe the assessor incorrectly calculated the square footage of your home or the number of bedrooms, missed a major renovation, or valued your property incorrectly, you may appeal through a formal process. Some municipalities review appeals by mail only, others review appeals at board meetings or by phone. Make sure to check with your local assessor's office to find out how the process works in your area. If you believe an assessor incorrectly valued your home and the appeal process allows for it, one option is to hire an appraiser to provide an alternative valuation. An appraisal completed by a qualified appraiser can be an effective tool in the appeals process, and may provide sufficient evidence to modify your assessment. However, if you are unhappy with your assessment simply because your neighbor pays a different amount in taxes, that is likely not enough for a successful appeal. Remember, a lot of factors in addition to location impact a property assessment, including upgrades and renovations.

Also, don't forget that there are statutory deadlines for appealing an assessment that vary from state-to-state. Read your assessment notice carefully as the dates for appeal are generally included. You should check with the assessment office or its website to confirm the exact deadline. The assessor's office will also tell you if you are able to appeal in-person, by mail, or by phone. However, you should be aware that the property owner is ultimately responsible for demonstrating that the assessment is incorrect. To do so, you should document the factual reasons that the assessment is inaccurate, such as the assessor miscalculated the number of bedrooms in your home. Simply claiming that your taxes are too high will generally not result in a successful appeal.

Property taxes are a significant cost for homeowners. Yet many misunderstand the assessment process, which ultimately determines their tax bill. It is critical to understand how the process works to make informed decisions and take the appropriate steps should you disagree with your assessment, including potentially hiring an appraiser.

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