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What Will That New House Really Cost You in Property Taxes? Thumbnail

What Will That New House Really Cost You in Property Taxes?

When shopping for a house and planning the housing budget, most people ask how much the property taxes are.  This is a sensible step, but if you are buying an existing home, what the current owner is paying may not be a good indication of what you will pay.

Why is this?  In many areas, ongoing property taxes are based on the market value of the house.  The local taxing authority may not have the resources to keep up with current market conditions and prices for all homes.  So, the property value used for tax assessment purposes may lag that of the true market price of the home.

An actual sales transaction for a particular property provides an easy way for the taxing authority to update its assessment for a given property.  If there is a significant difference between the actual market price you paid, and the market price being used for property tax calculation, you may get a notice from the taxing authority calling for a hearing to consider possible reassessment.

A reassessment may result in actual property taxes increasing by 25, 50 or even 100 percent in some cases.  Family budgets for a house purchase are often tight with little wiggle room.  A reassessment can cause significant financial hardship for years to come.

What to do?  If you have already purchased a property and a reassessment is proposed, it may be helpful to get counsel from an attorney who specializes in real estate.  He/she as a minimum may be able to help you assess comparable properties, and make sure the factors being used to assess your property are accurate.  They may also be able to help represent you at the hearing.

But you will be in a better position if you can do some research before you actually make an offer on a property.  Learn the formula that the taxing authority or authorities (municipal, school, county, etc.) use to calculate property taxes.  If it is based on market value, find out the market value being used for property tax assessment for the house you are considering.  This is public information available at your local property tax office or online.  If the market value currently being used for tax assessment is significantly lower than the price you are considering paying, you should adjust your budget for estimated property taxes upward accordingly.  If this makes the budget too high you may have to reconsider the purchase.

There are few ways to avoid the possibility of reassessment itself, but you can be prepared in advance and make a more realistic housing budget by doing a little homework!