Owning property is a dream-come-true for many people, and home ownership can provide many benefits to individuals, from a tax perspective and beyond. However, with ownership comes the responsibility (and requirement) to pay annual property taxes. You have some options to potentially lower your property taxes and one way is to protest them.
How Property Taxes Are Assessed
Generally, property taxes are assessed on an annual basis by local governments— counties and cities. The local government will provide a tax assessment valuing the property based on its type. For example, vacant land will be assessed differently than an improved lot with a commercial office building on it (and any special status or exemptions it holds). The most common is a homestead exemption, where the property owner receives a tax break on their principal residence. Although some states, like New Jersey and Pennsylvania, do not have a homestead exemption, there is a homestead exemption available through federal law as well.
A property’s assessed value is typically based on one of three methods: (1) sales evaluation method, where the assessor uses sales of comparable properties to determine the subject property value; (2) cost method, where the assessor values the property based on the cost of replacing the property; or (3) income method, where the assessor values the property based on how much income it generates from rent or other income sources.
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When Should You Dispute Your Property Taxes?
Taxpayers commonly dispute their property tax assessments because of the following reasons:
- The assessed value provided by the local government’s valuation board is too high, resulting in the homeowner paying more taxes than they should;
- The property has been misclassified by the local government (e.g. misclassifying a principal residence as an investment property, or a vacant lot as a commercial parcel);
- The property owner failed to file the homestead exemption or other special exemption/status provided by the state or local government.
There may be other, more unique situations that necessitate a property tax dispute, such as an error in the local government’s valuation software or an error in the location, status, or size of the property. Taxpayers should note that disputing your property taxes does not typically release you from your duty to pay your taxes. In most situations, taxpayers should pay their annual property taxes as they come due and, if the dispute results in a lower tax amount, the property owner will be refunded the difference.
General Procedure for Protesting Your Property Taxes
To protest your property tax assessment, the property owner must spend time preparing the necessary information to challenge the assessment, be prepared to work amicably with the local government’s assessment office to discuss concerns, and should follow all required steps to challenge the assessment or risk having the protest rejected for failure to follow required procedure:
- Retrieve and review the official tax assessment for your property. Local governments generally provide tax assessments annually, and the tax assessment documentation can typically be found on the assessor’s website. Some local governments may provide the assessment through paper mail as well.
- Pay your property taxes, unless the local government’s dispute procedure allows payment to be delayed until the dispute is resolved. As part of reviewing the dispute procedures, confirm whether or not you still need to pay taxes with an ongoing dispute. The answer is almost certainly yes—you will likely need to pay your taxes regardless of a dispute. If your dispute results in a lower assessed value of your property, and thus a lower tax on your property overall, the local government will refund you the difference.
- Obtain the property tax dispute procedures and requirements. These will likely be available online. However, it may be beneficial to call your local assessor’s office to confirm that the dispute procedures are up-to-date, as well as to have any questions or concerns answered.
- Determine whether you need to hire a professional to assist with the property tax dispute. A tax advisor, professional appraiser, or tax attorney may be needed to assist in the dispute of taxes. Additionally, you may not have time to go through the dispute process yourself, you may want to hire a professional to do the heavy lifting for you.
- Compare your official tax assessment to your neighbors’ properties, previous assessments of your property, and any other comparable properties. Local governments are often mandated by the state constitution or statutes to apply taxes uniformly to substantially similar properties. Comparing your property tax assessment to similar properties can help to determine if an error has occurred that can be disputed.
- Review your properties classification and available tax exemptions, if any. One of the most common reasons to dispute property tax assessments is because of a misclassification or failure to elect for a specific exemption. Review your property for its proper classification and what benefits or exemptions should have been applied to the assessment.
- If your property was classified as a commercial rental property, but you only rented the property out for less than fourteen days the entire year, the Augusta Rule applies and you would be eligible to exclude all rental income from the rental period.
- Reach out to the local assessor’s office to begin the property tax dispute process. Each locality’s process to dispute a property tax assessment is unique. Call the office to confirm steps to begin the dispute process. Typically, the process will consist of the discovery of evidence, some form of a hearing, and a final decision-making process.
- Remember to be cordial and professional with the local government employees when conducting the dispute process. The dispute process should be treated as a formal review process and all parties should act accordingly to ensure a friendly, speedy resolution.
- Confirm that you have completed all necessary and required steps to properly dispute your property tax assessment. The taxpayer disputing the property tax assessment must make sure they comply with all statutory requirements that authorize the assessment review board to grant relief. If the taxpayer fails to meet these fundamental requirements, they risk forfeiting the right to dispute the assessment.
At the end of the dispute process, the local government’s review board will determine if you are eligible for a reduced assessed tax value on your property or not. If the property tax assessment is deemed to be incorrect, the assessed value of the property will be adjusted. In turn, the amount of tax due will change according to the new value assessed.
Owning property is an exciting opportunity but also comes with its burdens and responsibilities. Protesting the property tax assessment on your property can help lower your taxes in the event that the property’s value was assessed at too high of a value. Learn more about real estate and taxes by requesting a demo today!