There are few things in life that are more certain than the inevitability of a tax bill. No one likes paying more than they have to, and yet, when we pay more, it generally means we’re making more income or maybe even won the lottery (might as well dream).
In many areas of the country, property values are on the rise. This is generally a good thing. It means that a lot of us will see our home equity increase and potentially get more out of a sale. At the same time, it means that when property values are reassessed for tax purposes, our taxes could very well go up.
Still, that tax bill is a little easier to swallow if you’re prepared and budget for it. Your county even sends you a notice when your house is reassessed in order to give you a heads up about changes in your taxable value and what it means for your tax bill.
This post will give you an idea of how to interpret that assessment and ways to get more information. But first, let’s talk about how this affects your escrow account.
Your Property Taxes and Escrow
If your mortgage is serviced by Quicken Loans, you most likely have an escrow account for taxes and homeowners insurance. It allows you to spread your tax and insurance payments out over the course of the year rather than having your checking account take a huge hit once a year.
If your property taxes go up, that can cause a shortage in your escrow account that could lead to either a one-time payment or higher escrow amounts rolled into your monthly mortgage payment in the next year.
By analyzing your tax assessment from the county or other local taxing authority, you can get an idea of what’s coming before we complete your next escrow analysis.
Before we continue, it’s important to note a couple of things. First, your tax assessment notice isn’t the tax bill itself. Second, we also get the assessment from your taxing authority, so there’s no need to send it to us.
Breaking Down Your Tax Assessment
Your tax assessment’s layout could vary depending on the requirements of your municipality. However, it should include the name of the person or people on the title who would be responsible for the bill. It will also list any exemptions you qualify for that would lower your taxable value.
The major points that affect your tax bill are the assessed value and the taxable value. Your taxable value is based on, but not the same as, your assessed value. Let’s take a look at assessed value first.
The assessed value is how much your property is worth for tax purposes. Sometimes this is based on an actual appraisal value, but more often than not, it isn’t. There are a few reasons for this:
- It’s not practical to evaluate every house every year, so many times, your property valuations are based on the general value of houses in your area.
- Many states don’t tax you based on the full value of the property, but rather some percentage of the full value that becomes your assessed value.
- Some states reassess your property value every year while others might do it after a given number of years. Still others only assess your property when you purchase.
- States may have limits on how high your property taxes can spike. It could be that your property value has gone up 6%, but your property taxes can only rise 2%.
- Some states won’t reassess every year, but instead tie your property tax increases to the rate of inflation.
Certain items are more likely to trigger a reassessment of value. These include a change of ownership and remodeling that results in a new addition. It’s important to consult state and local laws.
Once you have your assessed value, you can then figure out your taxable value. To figure out how much of your property value will be taxed at the tax rate in your area, you take your assessed value and subtract any exemptions you qualify for.
The most common one might be the homestead property exemption. In other words, you get to subtract a certain amount from the taxable value if the property is your primary residence. That said, states may have other exemptions if you’re disabled or live on certain types of land, for example. Any exemption you qualify for should lower your tax bill.
Getting Help with Your Assessments
If you have questions on your tax assessments or wonder if you qualify for any particular exemptions, you should contact your local taxing authority. Quicken Loans clients can get contact information for their local taxing authority as well as other information about their taxes on their Rocket Mortgage escrow page.
Hopefully this gives you a little more insight into how property tax assessment works. If you have any questions for us, feel free to leave them in the comments below.
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.