How to Budget for Property Taxes Before Buying Your Home

The property taxes on a home are designed to help homeowners take part of their community. Property taxes are distributed to the schools and shared community spaces of an area so they can continue to thrive. However, property taxes are also an important part of a new Venice home buyer's budget—one they need to calculate long before they ever move their first box into a home. The exact amount a homeowner pays is based on the location and neighborhood a homeowner has chosen, but there are ways to plan ahead so there are no surprises.

For informational purposes only. Always consult with a certified tax expert before proceeding with any real estate transaction.

State and Local Calculations

State and/or local officials determine how much the property taxes are based on the specific needs of the location. In most cases, there is more than one governmental entity accessing property taxes. These entities could include local school districts, cities, counties and/or water and sewer districts. When these entities have decided what that tax rate will be, the rates will then be added together to arrive at the homeowner's total property tax percentage.

This total property tax percentage is then multiplied by the assessed market value of the individual home to arrive at the total property tax due. This is an annual calculation so the rates and assessed values can change from year to year. An assessor will also determine the home's value by the demand of the surrounding property as well. This means that even if a homeowner hasn't made any significant improvements to their home, their assessed value may still increase.

Tax Deductions

Property taxes are generally deductible for a homeowners federal income taxes. However beginning in 2018, the new tax code laws will limit the write off on their taxes. For years 2018 through 2025, the Tax Cuts and Jobs Act states that homeowners can deduct up to $10,000 combined dollars from property and income taxes (both state and local). This write-off limit may affect those who live in neighborhoods with higher property taxes, so homeowners need to do the math to estimate how much they'll be able to write-off.

Planning Ahead

Property taxes are a matter of public record, meaning homeowners can budget for them even before they head to an open house. Going back several years into the data gives the homeowner an idea of how the neighborhood value has fluctuated over time. Some neighborhoods remain relatively stable, while others may rise and fall based on the demographics and demand. Homeowners can also contact their local tax assessor to get a better idea of the trends and factors that are most likely to affect them. Going over this information will take some time, but it's a must for homeowners who don't want to be blindsided with a serious tax hike just a year or two down the line. Your real estate agent may also have either and estimate or actual historical data for property taxes for homes in which a buyer may be interested in.

Local Perks

Property taxes are just as important for homeowners to pay as their mortgage. And just like any tax, the more a homeowner should neglect them, the more fees may be added on (with the last stop being home foreclosure). Some states and/or local taxing entities may offer exemptions to groups such as veterans, older homeowners, the disabled or homesteaders. Other taxing entities may also offer extremely low property taxes to attract more potential property owners to the area. Additionally, some states (such as California with Proposition 13) or counties, may limit the percentage of property taxes, or increases, so homeowners will not experience a dramatic increase in property taxes as the result of large increases in housing prices.

Paying for Property Taxes

Homeowners who own their homes outright will be responsible for paying the property taxes directly. Homeowners who have a mortgage will usually pay into a monthly escrow account. The mortgage processor will then be responsible for remitting the annual property taxes from the funds accumulated in the escrow account.

In some cases, the homeowner may be allowed to pay for their property taxes with the help of a credit card. However, should they do so, they should be aware that many taxing entities charge a credit card processing fee - some as high as 3%, which will be added to the total. In other cases, some taking entities allow for the property taxes to be paid in either quarterly or semi-annual installments. Check with the local taxing district to see what payment options are available in your area.

Property tax tends to be either overlooked or a much debated topic among homeowners, largely because the rules can vary so much from neighborhood to neighborhood. The best way to understand a potential new homes property taxes is to delve into the research or contact a qualified real estate agent in the area in which you might be searching for a new home.

For informational purposes only. Always consult with a certified tax expert before proceeding with any real estate transaction.