You can appeal your property tax assessment to save money on property taxes. Your tax assessment is used solely to determine the taxes to be paid on the property but doesn’t necessarily accurately reflect the value of the home if you were to sell it, especially if the value hasn’t been updated recently.
So it’s in your best interest to have the lowest property assessment value possible to pay less property taxes.
You can challenge your property tax assessment and request a second valuation if you find errors or missing abatements that you are entitled to that will lower your assessed value to reduce property taxes. You can also appeal the decision if it is turned down with your local tax assessment office.
How can I appeal my property tax assessment?
Before you can appeal your property tax assessment, you have a bit of work to do to see if you have a case. Depending on where you live, the process might be slightly different but here’s what you usually need to do:
- Receive your property tax assessment form with your home’s valuation so that you can understand the current situation.
- Ensure that everything listed regarding your property (lot size, home size, number of bedrooms, etc) is correct. Serious errors could be grounds for an automatic appeal.
- If you feel the assessment is incorrect, discuss the assessment with the authority responsible for it to understand their reasoning and assumptions. Get any errors corrected that could impact the assessed value downwards.
- Ask the assessor if you are entitled to an abatement (rebate) available to certain people who are disabled, senior citizens and military veterans among others.
- Do you own personal research for other abatements that your specific area offers for home renovations, energy incentives or other options that do exist such as rebates for widows (Arizona), those who build a granny flat (Smithtown, NY) and for volunteer firefighters (parts of New York state).
- Determine the Fair Market Value of your property and compare it to the assessed rate. Speak with your neighbors about their assessed rate. Speak with local real estate agents to get a list of recent sales of similar homes. Check Zillow.com or Realtor.com to see what other similar homes are selling for. Pay to get your home assessed by an appraiser.
- Verify the current assessment level in your local area. Check the Tax Foundation website
for an updated map to see how high property taxes are in your local area. - Determine if filing a complaint is worth your time and paying the associated costs that come along with an appeal. Are you in a high property tax state like New Jersey or Illinois or a low property tax state like Hawaii or Alabama?
- If filing a complaint seems worthwhile, assemble your basis for a formal complaint and challenge of your assessed home value.
- File your written complaint.
- Present your evidence and argue your case in person if required.
- Appeal your case if you are turned down and you feel it’s warranted.
Check out this handy checklist to go through each step in more detail to assemble your property tax appeal. Pay attention to due dates as you only have a period of time to file your complaint.
Why would I appeal my property tax assessment?
The National Taxpayer’s Union Foundation (NTUF) quotes figures that suggest that 30% – 60% of taxable property in the US is overtaxed due to excessively high assessments but that less than 5% of taxpayers challenge the assessment. The NTUF further suggests that when a case is prepared properly most taxpayers win at least a partial victory to have their property more accurately assessed.
Other stats show that 20% – 40% of tax payers who appeal their case win and end up paying lower property taxes as a result. It’s likely that statistics can vary wildly from state to state given that each area makes its own rules, has its own tax rates and might calculate assessments slightly differently.
A successful appeal means you can lower your property taxes which not only saves you money this year but could potentially save you money for years to come.
Assessed value vs appraised value vs fair market value
There are several values that you will typically see mentioned regarding your property and it’s helpful to know what each means.
Assessed value
Assessed value is the number that is used to determine how much property tax you pay. We’ll discuss the specifics and calculation for this value in more detail below. It is determined by the Market Value of your home and the Assessment Rate that is used.
Appraised value
A home’s appraised value is determined by a professional appraiser and is their best estimate as to the value of the home. The appraiser looks at specifics of your home like location, size, condition, amenities, appliances, finishings, interior and exterior design, etc and compares it to comparable properties in the area along with current market trends.
Fair market value
This is the price that the owner could expect to receive for the home and the price a buyer could expect to pay. The listing price of a home is generally suggested by the chosen real estate agent and approved the homeowner to come up with a price that is reasonable. The actual selling price is the price agreed to by the seller and buyer. The same factors used to determine the Appraised Value are used for the Fair Market Value along with recent comparable home sales.
Let’s continue by looking at how property assessments are actually calculated and why they are often able to be challenged.
How property assessments are calculated
Assessed Value = Market Value x (Assessment Rate / 100)
Your home’s Assessed Value is equal to the Market Value of the home multiplied by the Assessment Rate divided by 100.
Assessed Value: This is the value of the home that is used specifically to calculate the property taxes. It does not get used to determine or influence the sale price of your home so the lower the Assessed Value is, the less tax you will pay. The Assessed Value is prepared by a municipal property assessor.
Market Value: The Market Value is what your home would reasonably sell for in the real world given a willing seller (you) and a willing buyer. It is what the market will pay for your home.
Assessment Rate: This is the tax rate percentage determined by your local government. It’s a number up to 100% that reflects factors in your local area that may raise or lower the value of similar homes. The rate is generally the same for every property in that specific area.
Example: Your home’s Market Value is determined to be $200,000. The Assessment Rate in your local area is 80%. Your Assessed Value is:
$200,000 * (80/100) = $160,000
For the purpose of tax assessment your home is valued at $160,000.
Why are property assessments overstated?
- During periods of falling house prices, tax assessments often stay the same or rise putting the assessment value out of whack. Imagine how inflated assessed valuations were in 2008 and other times of major house price drops.
- Home values may only be assessed every few years in your local area which means if home prices have fallen and tax rates haven’t accordingly gone down, you will be overtaxed.
- The Assessment Rate may be inappropriate and higher than it should be based on numerous factors.
- With local governments facing budget shortfalls, they increase property taxes to make up the gap knowing that the overwhelming majority of people won’t appeal their assessment.
- There may be serious mistakes made on your personal assessment that overstate the size of your land or house or make another critical error such as overstating the number of bedrooms or bathrooms in your home.
Final thoughts on property tax assessments
The average US property tax rate is around $2,000 and the average assessment rate is around 1%. Take a look at your current assessment rate and decide if the potential savings you could achieve are worth your time to appeal your assessed rate. If you could potentially save a reasonable amount of money per year – every year – and you feel you have a case, it may be worth your time to appeal.
One final thing to keep in mind: There may be circumstances where appealing a tax assessment could result in your property tax going up and you end up paying more tax. Thoroughly and accurately assessing your current situation is important to determine whether or not an appeal is warranted.