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Property Tax

Section 5 - Chapter 24

Save On Your Property Tax

Property tax is based on the value of the home. If the tax assessor has assessed the home at too high a value, your taxes will be too high. In this case, the assessment can be challenged, and the taxes lowered. Every property tax authority has a procedure for doing this.

First, you have to determine what the assessor says your home is worth. Each state is different in how the assessments are done. In Michigan, for example, the assessment is pegged at half of the "market value" of the property. It is set at ten percent in some states. Ask for help from a real estate agent or the assessor to figure out how it is done in your state.

Suppose the assessed value of the home you are looking at is $115,000, and this represents half of the market value. The assessor has determined that the home is worth $230,000 then. If you are buying the home for $200,000 you should be able to get the taxes lowered by challenging the assessment.

With home prices rising quickly in recent years, this isn't common. I did buy a rental home for less than the assessors estimate once, though. When I went to the assessors office and showed him the purchase agreement, and told him I wasn't related to the seller, he immediately agreed to adjust the assessment, and my taxes were lowered.

The procedures are different in each jurisdiction, so call and ask if you think you have a valid claim. Some allow challenges once each year, or only if there is a "substantial" difference in your estimate versus the assessors. To make your case, you need to demonstrate why the home isn't as valuable as the assessor says, and the purchase price alone may not convince him. Also, it must be an "arms-length" transaction to use the purchase price as evidence of value (in other words, you didn't buy it from a relative or business associate).

Another way to save on property taxes is to be sure your property is classified correctly. The difference between an "owner occupied home" versus an "investment property" can be a doubling of your property taxes in some areas. Also, in some locales, you may have to sign some paperwork to get your "homestead tax exemption," and pay a lower property tax rate.

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