A Homeowner’s Guide to Understanding Property Taxes

When budgeting the cost of a new home, most future homeowners focus on securing a manageable mortgage payment. But that mortgage is only the beginning. There are many additional costs that homeowners face besides mortgage interest that should be considered in a budget. The second largest expense for most homeowners, for example, is property tax payments.

Especially if you are a new homeowner, you probably are not very familiar with this significant expense. In 2016, single-family homeowners in the United States and D.C. paid an average of $3,296 in property taxes.

Understanding property taxes will help future homeowners budget more efficiently, and live comfortably within their means in their new home.

Understanding property taxes—an overview

Property taxes are yearly taxes charged by the state and local governments (city and county) for each parcel of real estate within their borders. Typically, these taxes are governed by state laws, but assessed and collected by the county ad valorem ("according to value"). After a home has been officially appraised by the county, the property tax for that home is calculated by applying a certain tax rate to the value of the property.

This tax rate is determined by the needs and yearly budget of your local government, including counties, cities, townships, school districts and special districts. A state tax is also levied if your state has a state-level property tax. These taxes are used to cover the expenses of local services such as:

• Public transportation
• Parks and recreation
• Public schools
• Libraries
• Emergency services
• Street landscaping and lighting

Special circumstances within your city or district might levy additional property tax payments. For example, direct assessments or bonds are flat fees property owners are required to pay following a city or district-wide vote to fund local services not covered or not covered in full by property tax revenues.

And special assessments are often set up to establish long-term funding for municipal services such as parks, emergency services and schools that experience a strain on their resources due to an influx of people caused by the development of a new sub-division.

Determining property taxes

Tax assessments are conducted with varying frequency depending on the area you reside in, and follow procedures set by state laws and regulations. On a basic level, property assessors look at your home’s square footage, geographical location and property values in the area, renovations to the property, maintenance and so on.

The assessor generally groups a community’s properties together based on similar characteristics and analyzes comparable sales of the properties to determine an average sales price for each group. Those individual characteristics of your home are still considered, however, which is why it is important to remember that just because you paid the same price for your home or have the same square footage as a friend or family member does not mean your assessed value will be the same—other factors like geographical location matter.

While homeowners cannot challenge their local property tax rate, they can appeal the appraised value of their home. Characteristics like incorrect square footage and renovation plans that did not pan out can skew an assessment; however, it is recommended that homeowners first obtain the assessment documents on their property and look them over. Your local assessor’s office will have more information on the appeals process. Homeowners should also understand that often fees are required.

If you are a future homeowner and you would like to learn more about the property taxes in an area, there are a couple research avenues you can explore. Property tax calculators like this one use the assessment value of your home to calculate a predicted property tax for your home. They also show you local, state and national property tax comparisons. These can be great for new homeowners or potential homeowners who know the previously assessed value of their dream house.

One of the best ways to determine property taxes in a given area, though, is to research the area’s property tax records via the county appraisal district’s records. Tax records for districts and cities within the county should be available online to potential homeowners looking to gauge the cost of owning a home in a specific area.

Property taxes in Texas

Property taxes in Texas are, unfortunately, higher than most states and exceed the national average. Texas has an effective tax rate of 2.06 percent, and the average homeowner in Texas pays $4,660 in property taxes. Of course, Texans receive tax breaks in other categories, such as income tax—the Lone Star State does not have it!

The state of Texas is also unique—though not alone—in the fact that it does not levy state-level property taxes. While state law allows the comptroller to advise both local governments and taxpayers on property tax issues, it cannot intervene on local tax matters. The state also does not set property tax rates.

Every county in Texas as an appraisal district that handles property tax assessments and issues. The appraisal process is a large part of the district’s work, and the appraisal date for the state of Texas is January 1.

A citizen board handles disagreements concerning property value, and cities, counties, schools and special districts draw up budgets and determine tax rates. The state can advise local governments and taxpayers on property tax-related issues, but it cannot intervene in local tax matters.

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