How Do Property Taxes Work?
If you’ve never owned real estate, you may not know how property taxes work. Property taxes are what you pay in the United States for owning a piece of real estate. Property tax is usually 1.5% of the market value of the asset. A tax assessor determines the market value of properties. Some states levy taxes even on personal property such as machinery, motor vehicles, etc.
In quite some states, you receive a property tax bill every six months. In such states, you receive your property tax bill, six months in arrears. This is to say that each year’s taxes are paid the following year.
If you sell your home, there will obviously be outstanding property tax amounts to be paid. The new owner of the house will not pay this for you, even though the tax will be charged in arrears. You will be charged the outstanding tax amounts at the time of the sale. The new homeowner will then be paid this amount so that they can remit the amounts when they come due.
When the buyer gets the property, he will receive the tax bill for months he was not occupying the house. He must pay this bill when it’s due, and not think there’s a mistake. For a buyer of a home, it is important to know how the seller’s tax bill is reconciled at settlement.
At times, your taxes may be included in your monthly mortgage payments. Your lender will keep this in an escrow account at times referred to as impound account. When the tax bill comes through, it will go to the lender who will settle it from this account.
In most jurisdictions, assessments are done every 3, 4, or 5 year period. If a homeowner does not agree on a value set by an assessor, it can be appealed. Some states have also established a homestead exemption, which limits the annual increase in property tax for owner-occupiers so that they are not taxed out of their homes.