Factors that lead to a property tax increase

Mortgage payments, insurance, and maintenance are just part of the picture – homeowners also carry the ongoing burden of property taxes. Assessed by local governments at the county or city level, these taxes fund the public services most communities depend on: schools, parks, roads, and emergency response. And yet, for many homeowners, the annual bill still comes as a shock. "Why are my property taxes so high?" is one of the most common questions in real estate.

The short answer: it's complicated. Property taxes vary widely by location and carry significant weight in a home's true cost of ownership. How they're calculated, what drives them up, and what you can realistically expect to pay are things every current or prospective homeowner should understand. Four factors tend to drive property taxes higher: home improvements and renovations, inflation and housing market shifts, local government spending decisions, and rising home values in your neighborhood. Here's what's really behind the number on your bill.

What are property taxes?

Local governments levy property taxes to raise money for emergency services, libraries, parks, trash pickup, schools, law enforcement, and other 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 may also 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 are typically calculated as a percentage of your home's value, but determining that value is a process with several moving parts.

1. Assessors consider the property itself: A tax assessor, a government employee, evaluates each property in their jurisdiction to estimate its worth. They look at the home's size, features, and condition – including any home renovations that may have increased its market value – as well as recent sale prices of nearby comparable homes.
2. The home's value may then be adjusted: During the property tax assessment, exemptions and other considerations are applied to the estimated value to arrive at an assessed value, which is the figure actually used to calculate your property tax.
3. Combining the assessed value and the millage rate allows you to determine total taxes: Once the assessed value is established, it's multiplied by the local tax rate (known as the millage rate) to produce your final property tax bill.

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 each $1,000 in assessed value 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

Your property tax bill comes down to two things: what your home is worth and what your local government charges. When either one rises, so does your bill.

Home improvements and renovations

Improving your home can increase its value, but not all projects are treated equally when it comes to property taxes. The type of renovation plays a significant role in how much your home's value changes, and whether that change gets noticed by your local assessor.

Adding a bedroom, finishing a basement, or converting unused space into livable square footage are among the upgrades most likely to push your assessed value – and your tax bill – higher. Major kitchen and bathroom renovations can have a similar effect, making the home more appealing to future buyers and raising its market value in the process.

As a general rule, any improvement that requires a permit is most likely to trigger a reassessment. Assessors routinely review permit records to identify renovations that could affect a home's value, and a new assessment often follows significant projects.

That said, a higher home value isn't all downsides. Renovations that increase your home's worth also build home equity faster – the difference between what you owe on your mortgage and what your home is currently worth. The wider that gap, the more equity you have available to tap for future improvements, debt consolidation, or other financial needs.

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 can also 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 are essentially how local governments fund the services their communities depend on – and the more those services cost, the higher the tax rate tends to be. When spending rises, so does the need to collect more revenue, which often means homeowners foot a larger bill.

Major expenditures are a common driver. If a city wants to expand emergency services by opening a new firehouse, or a school district needs to build a new high school, a tax rate increase may go before voters. When those measures pass, the rate goes up — and so does your annual payment.

Beyond city and county governments, two other taxing entities can add to your property tax bill in ways many homeowners don't anticipate:

• Public improvement districts (PIDs) are special districts created to fund specific infrastructure or community improvements – things like sidewalks, streetlights, landscaping, or enhanced public safety in a defined area. If your home falls within a PID boundary, you'll pay an additional assessment on top of your standard property taxes to help cover those costs.
• Municipal utility districts (MUDs) are independent government entities typically formed in developing areas outside city limits to finance the construction of water, sewer, drainage, and other utility infrastructure. Homeowners within a MUD pay a separate tax rate to repay the bonds used to build that infrastructure – and in newer suburban communities, MUD taxes can be substantial.

Understanding which taxing entities apply to a given property is an important part of evaluating its true cost of ownership.

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 your property tax assessment

Property tax assessors are human, and that means assessments aren't always accurate. If your home's assessed value seems unreasonably high, you have the right to challenge it. A successful appeal won't just lower your assessment; it can reduce your property tax bill for years to come.

Start by understanding the process. Every jurisdiction handles appeals differently, so your first step should be contacting your local assessor's office to learn the specific rules, deadlines, and filing requirements in your area. Missing a deadline can forfeit your right to appeal for that tax year.

Build a strong case with evidence. Appeals are won with documentation, not frustration. Gather anything that supports the argument that your home was overvalued:

• Comparable sales (comps): Recent sale prices of similar homes in your area that came in below your assessed value are among the most persuasive evidence you can present.
• An independent appraisal: Hiring a licensed appraiser to assess your home's fair market value adds a professional, third-party opinion to your case.
• A real estate professional: An experienced agent familiar with your local market can help identify comps and speak to your home's true value.

Be prepared for the formal process. Depending on your jurisdiction, appealing may involve paying a filing fee, submitting supporting documents, and presenting your case in person before a board of assessors. Going in organized and prepared makes a meaningful difference.

Check whether a homestead exemption can lower your bill.

Before – or alongside – filing an appeal, it's worth checking whether you qualify for a homestead exemption. This is one of the most accessible and overlooked ways to reduce your property tax bill without going through a formal appeals process.

A homestead exemption reduces the taxable value of your primary residence, meaning you're taxed on a lower number even if your home's market value stays the same. If your home is assessed at $300,000 and your state offers a $50,000 exemption, you'd only be taxed on $250,000 – a difference that can add up to hundreds of dollars in savings each year.

Most states offer some form of homestead exemption, though the benefit amount and eligibility rules vary widely:

• Texas: Offers one of the most generous exemptions in the country. Homeowners receive a $100,000 exemption from school district taxes, with additional exemptions available for seniors and veterans.
• Florida: Provides up to a $50,000 exemption on a primary residence, plus the Save Our Homes cap, which limits how much assessed value can increase year over year.
• California: Offers a $7,000 exemption off the assessed value for owner-occupied homes, along with Proposition 13 protections that limit annual assessment increases to 2%.
• Georgia: Provides a standard $2,000 exemption from state and county school taxes, with larger exemptions available for seniors and disabled veterans.
• New York: Offers the STAR (School Tax Relief) program, which reduces the school tax burden for qualifying homeowners, with an enhanced benefit for seniors.
• Illinois: Provides a general homestead exemption that reduces assessed value by up to $10,000 in Cook County and $6,000 elsewhere.

A handful of states – including Hawaii, New Jersey, and Pennsylvania – either offer very limited exemptions or structure their relief programs differently, so it's always worth checking your specific state and county rules.

One important note: the exemption is never automatic. You need to apply through your local assessor's office, and most jurisdictions require you to meet an annual or one-time filing deadline. New homeowners especially should make this one of their first post-closing to-dos.

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?

New Jersey holds the title for the highest effective property tax rate in the country, followed by Illinois and Connecticut. With an average effective rate of 2.23%, a homeowner with a $400,000 home in New Jersey can expect to pay roughly $8,920 in property taxes each year. For context, that's nearly double the national average — and rates can vary even further depending on the municipality, ranging from under 1% in some towns to over 3.5% in others.

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.¹ If that sounds like the right move for you, start the refinancing process with Rocket Mortgage.

¹Refinancing may increase finance charges over the life of the loan.

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