These 4 factors lead to a property tax increase

On top of the mortgage, insurance, and maintenance, homeowners must pay property taxes. These taxes are assessed by local governments, usually the county or city, to pay for schools, parks, roads, and emergency services.

Property taxes vary widely from one area to the next and have a significant effect on the affordability of a home. It’s important to understand how they work, how much you can expect to pay on a specific home, and what factors can lead to a property tax increase.

What are property taxes?

Local governments levy property taxes to raise money for emergency services, libraries, parks, trash pickup, schools, law enforcement, and other local services.

Taxes often are paid twice a year or quarterly, but your mortgage lender may require you to make monthly payments into an escrow account. When your property tax bill is due, it’s paid on your behalf out of the escrow fund.

This means your property taxes will increase your monthly mortgage payment.

You also may pay your homeowners insurance through an escrow account.

How to conduct a property tax search

When buying a home, it’s important to know in advance how much you’ll pay in property taxes. Property tax records are usually public, so you can find the exact amount the current owners of the home you want to buy are paying.

Many local governments offer a parcel viewer or another online tool that provides public information, including property tax payments, for all properties in their jurisdiction. Usually, you’ll be able to conduct a property tax search using an address or by clicking around on an interactive map.

For example, Boston has a parcel viewer that lets you view the value of a plot and the taxes assessed. Omaha, Nebraska, has a similar portal.

Understanding the property tax assessment process

Property taxes usually are calculated as a percentage of the value of the property. To calculate how much tax you owe, you need to know what your property is worth.

Determining the value of a property for tax purposes can be complicated. It starts with government employees, called assessors, who evaluate each property in their jurisdiction to estimate its worth.

Assessors consider the property itself, including its size, features, and condition, as well as the prices that nearby comparable homes have recently sold for.

The home’s value may then be adjusted using exemptions and other considerations to create an assessed value that’s used to calculate the property tax.

For example, Malden, Massachusetts, allows owner-occupant homeowners to exempt 30% of their home’s value from property taxes. A home appraised at $500,000 would have an assessed value of just $350,000.

Many jurisdictions have different tax rates, sometimes referred to as millage rates, for commercial and residential properties. For example, a city may charge a millage rate of $20 for each $1,000 in assessed value for commercial properties and a millage rate of $12 for residential properties.

To determine the amount of tax owed, use the assessed value and the millage rate. Using the above example, a residential home with an assessed value of $400,000 would owe $4,800 in property tax.

Does property tax increase every year? It depends on where you live. In some jurisdictions, property is reassessed annually. In California, property taxes can increase no more than 2% per year, and homes are reassessed only when they are sold or a significant improvement is made to the property.

Key factors contributing to higher property taxes

Two primary factors determine your property tax bill: the value of your home and the tax rate your local government charges. Increases in either factor may result in a higher property tax bill.

Home improvements and renovations

Improvements and renovations can increase your home’s value. The type of improvements and renovations plays a significant role in how much its value changes, or if the change is noticed by your local assessor.

For example, adding an additional bedroom, finishing a basement, or converting a portion of your property into livable space will boost the value of your home and may increase your property taxes.

Other significant projects, like a kitchen or bathroom renovation, also could make your home more appealing to future buyers, boosting its value and your taxes.

In general, improvements that require you to pull permits are most likely to trigger an increase in property taxes. Assessors look through permit records for renovations that could change a home’s value and will likely do a new assessment after major projects.

Economic factors: Inflation and housing market dynamics

Larger economic factors also can increase your home’s value and your property tax bill.

Inflation is a general increase in prices, making everything more expensive, from food and gas to services and housing. If inflation is 5%, your home’s value is likely to increase by about 5%, which will usually lead to a property tax increase of a similar amount.

The local housing market also can play a role. If you live in a hot market, home prices may rise more quickly than inflation. Assessors often use comparable home sale prices to gauge property values, which can lead to a property tax increase.

Government policies and local budget decisions

Property taxes pay for local government services. How much your local government needs to pay for the services it offers affects the property tax rate it sets and how much you’ll pay. The more your local government spends, the more it needs to raise in property taxes, which may mean higher rates.

For example, if your city wants to expand emergency services by opening a new firehouse or the school district wants to build a new high school, a property tax increase may be put on the ballot for voters to consider. If it passes, the tax rate will increase.

Impact of nearby home sales and property value changes

One of the most influential factors in determining your home value and the property taxes you pay is how much comparable homes in your neighborhood have sold for.

For example, say you bought your home for $500,000 a year ago. This year, a house on your street of a similar size and with comparable features sold for $600,000. It’s pretty reasonable to believe that your home might now appraise closer to $600,000 than $500,000.

Assessors usually adjust the appraised value of properties based on the sale prices of surrounding homes. In a hot market where prices can rise quickly, a few high-value sales near you could cause your home’s appraised value to spike, leading to a significant property tax increase.

It’s important to be mindful of the local real estate market and keep an eye on home sales in your neighborhood so you can be prepared for potential increases in taxes.

Strategies for mitigating higher property taxes

Property taxes are, in many ways, out of your control. If you feel that you’re paying too much, there are a few steps you can take.

Appealing tax assessments

Property tax assessors are human, which means that they can make mistakes. If you think that your home’s assessed value has increased by an unreasonable amount, you can appeal to your local government.

Be sure to check with your local assessor’s office to understand how to appeal your assessment.

In general, you’ll need to provide evidence to support your argument. Bring in documentation that shows the assessor overestimated your home’s value. If you can find similar properties in your area that have sold for a lower price than your home’s assessed value, present that evidence during the appeal. You also can enlist the help of a real estate professional or an independent appraiser.

You may need to pay a fee and submit documents to support your case. You also may have to attend a meeting and present your case before a board of assessors.

FAQ

Here are answers to common questions about factors that can increase your property taxes.

Why did my property taxes go up, but my neighbor’s didn’t?

Your property taxes are based on the value of your home, so anything that could boost the value of your home without influencing your neighbor’s home value could be the culprit here. One of the most common causes is a renovation or home improvement project, which increases your home's value.

How can I lower my local property taxes?

To reduce your local property taxes, you’ll either need to reduce the value of your home or reduce the amount your local government charges in property taxes. That could mean electing representatives who wish to cut government spending or eliminating some of the services your local government provides.

What state has the highest property tax?

Property tax rates are typically set by city and town governments, rather than state governments; however, some states have a reputation for high property taxes. As of 2023, Illinois has the highest effective property tax rate at 1.83%.

The bottom line: Buyers should expect property tax increases

Property taxes are a significant component of the cost of homeownership, but they’re also one you have little control over. Before you buy a home, do your research to understand how much you’ll pay in property taxes, and be ready for the amount to increase over time.

If you’re struggling to afford your mortgage payment due to rising property taxes or other factors, one solution could be refinancing. If that sounds like the right move for you, start the refinancing process with Rocket Mortgage.