As if buying a home isn’t expensive enough, you have to pay property taxes on top of a mortgage and insurance. For those who haven't had the, ahem, pleasure of dealing with them, a property tax is a tax on the real estate you own, including both the land and the value of your home. The funds collected from property taxes are used for libraries, public schools, road construction, and a handful of other programs, so they are an inevitable fact of home ownership in the U.S. The thing is, your property tax rate isn't fixed because the value of your home isn't fixed—and also because different states have different regulations—which means they can increase down the road. “Depending on where you live, there may be events that can trigger a reassessment of your property and a more significant increase to your annual tax bill,” says Lexi Newman, a realtor in Los Angeles. “These items vary, so your best bet is to contact your local assessor's office to find out specifics.” The good news is that in some states, such as California, regulations keep property taxes fairly stable.
But for first-time homeowners, understanding what moves the needle can be a little confusing. Below you'll find six factors that might make your property taxes go up.
1. Moving to a New Area
“Rates vary by city, county, and state,” Lexi explains. “In Los Angeles, we use 1.25 percent as a baseline, although this rate actually varies depending on where you live in the county. In order to calculate what your property tax will be each year, you would multiply your property tax rate by the assessed value of your home." So if you move to a home of comparable value in a new neighborhood or new state, the taxes will likely differ. And multiple municipalities can even impose taxes on the same property: You might pick up an additional property tax if you move downtown from a place outside the city limits. Moving can also result in a lower tax bill, of course. A local realtor can help you understand the rates and municipalities involved in a new neighborhood.
2. Adding onto Your Home
Home-improvement projects big and small can trigger reassessments to your property's value, Lexi points out. In fact they’re one of the most common causes of a higher property tax bill. If a home-improvement project adds square footage to your home, that will almost certainly boost your home’s assessed value, which is a good thing for your home as an investment. But it also means you can expect a bigger tax bill when your home is reassessed. (Homes are reassessed every few years depending on where you live.)
3. Other Home-Improvement Projects
It's not just expansions, either. “Anytime you modernize existing space or change its physical configuration and use, that square footage can also be reassessed,” Lexi says. “Anything from installing a pool to adding a shower to a half-bathroom to regrading your yard for improved drainage can trigger a bump in your taxes.” As a general rule of thumb, any project that adds value to your home will (you guessed it) also increase your tax bill. So do your research before you renovate to make sure you're adding enough value to your home to offset the tax increases—you want the investment to be worthwhile!
While it’s difficult to determine exactly how much your property taxes may increase, you can use a tool like this Cost vs. Value report
to see how much different home-remodeling projects will increase the value of a piece of real estate on average, depending on the state. Combine that with SmartAsset’s property tax calculator
and you’ll get a general idea of how much more you can expect to pay in taxes.
4. An Increase in Home Sales Around You
“We find that property tax bills jump higher when there have been a number of sales in the neighborhood,” says Jeff Miller, cofounder of AE Home Group
. More sales mean an increase in the assessed value of properties in the area because, well, it's proof positive that the neighborhood is more desirable—so the properties are too. Ergo, Jeff says, your property tax bill will go up. For the same reason, nearby construction can increase your home’s value too, including the addition of such amenities as parks, golf courses, or lakes, for example.
Most counties assess the value of homes every few years, although in some states they are reassessed annually. When the time comes, your county’s assessor will appraise the value of your home based home additions, nearby construction, and comparable properties sold near you.
5. State and Local Budget Decisions
When your state and local governments decide to cut or fund a public service that is subsidized by property taxes, you might see that reflected in your assessment. Maybe they're aiming to better the public school system, or the local roadways. Even if you don't use the service, you might pay for it in property taxes. “With property taxes, public officials basically argue that they can repeal the law of gravity as far as the economy goes!” is how Pete Sepp, executive vice president of the National Taxpayers Union, once put it to CNBC
. Similarly, if the state decides to cut funding for those services, your local government has to pull the money from somewhere, and that could mean higher property taxes too.
6. Supplemental Tax
New homeowners might be surprised when they get a supplemental tax bill in the mail. “Keep in mind that the first year you own a property, you may be subject to a supplemental tax that covers the difference between the old assessed value (what the last owner was paying) and the new assessed value (after the property is deeded to you and is reassessed by the tax authorities),” Lexi says. “There can be lag time before the new taxable rate is being reflected on your tax bill, hence this supplemental tax that bridges that difference.” While not actually an increase in your property tax, it’s a potential extra cost to be aware of nonetheless.
But for all of the potential increases, there is also the possibility of a potential decrease in your tax bill, should the opposite take place (if home sales are dropping off in the area, for example). If you think your property tax assessment is wrong, or you believe your home has declined in value, you can request a reassessment. Just head to your county tax assessor’s website and search for forms. (Here
are the forms for L.A. County, for example.)
The one bright spot in all of this? Property taxes are deductible, which basically means you can use them to lower your federal income tax bill. There are, of course, some big changes to our tax code underway, which will impact many homeowners in this arena. “For those who itemize, property taxes may be deducted up to $10,000," explains Mark Hamrick, Bankrate.com's senior economic analyst in regard to the changes. Filers who are used to taking a larger deduction—those with really big property tax bills—might end up paying more when the changes take effect (likely in January, so tax returns filed in 2019 would be the first affected).