Property tax is one of many responsibilities that come with owning a home. Counties, municipalities and school districts are a few examples of the taxing bodies that rely on property taxes to fund their operations. Whether you’re gearing up to be a first-time homeowner or you’ve purchased a home before, consider how much your property taxes will cost. The way taxes are handled varies by state and by local tax jurisdiction, and learning how yours are levied can help you determine your overall housing costs.
Here’s what you need to know about property taxes:
1. You Could Incur Penalties for Not Paying Property Taxes
You probably know that you should pay your property taxes, but you might not know what happens if you don’t. The penalties vary by city and state, but overall, you eventually can lose your house to foreclosure if you fail to pay your property taxes.
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2. You Might Be Allowed to Pay Your Property Taxes With a Credit Card
Some cities will allow you to pay your property taxes with a credit card, usually through a third party that helps facilitate that process. But remember — just because you can doesn’t mean you should.
The payment processors typically charge a 2 to 3 percent fee on credit card payments they process. When you’re paying a large bill like a property tax bill, that can really add up.
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3. You Get a Tax Break Because of Your Property Taxes
Buying a home is an expensive process, but owning one can get you tax deductions, tax credits and tax rebates on your next tax bill. You can deduct what you paid in property taxes throughout the year when you file your federal income tax return.
4. You Can Pay Your Property Taxes Out of Escrow
Many mortgage companies make paying property taxes more manageable by paying your property taxes out of an escrow account you fund by paying 1/12 of your tax bill with each monthly mortgage payment. Just be sure to follow up every now and then to check that your tax bills are being made on time, because you are trusting your lender to pay these bills on your behalf.
5. You Might Be Eligible for a Property Tax Exemption
In some cases, you might be tax exempt when it comes to your property taxes. Tax exemptions vary by state and by local tax jurisdictions, and to find out if you’re eligible, you should contact your local tax assessor.
Military veterans often qualify for exemptions. And residents of Smithtown, New York, for example, can get an exemption for building or renovating a home for a grandparent.
Homestead exemptions reduce property taxes for all homeowners in a particular jurisdiction by sheltering a certain amount of a home’s value from tax, according to the Institute on Taxation and Economic Policy. These exemptions are considered progressive approaches because they provide the greatest tax relief to the homeowners who need it most.
6. You Can — and Should — Get an Estimate of Your Property Taxes Before You Buy
The way property taxes are calculated vary city to city and state to state. To get an estimate of your property taxes, you could use a property tax calculator, but in order to get a more accurate answer, contact your local tax assessor’s office. They can give you the exact amount you might owe and can answer any questions you have.
Ultimately, to be fully prepared for your home purchase, learn as much as you can about property taxes in your area. Property taxes can be a significant expense for your household, so it’s important to know what percentage of your budget will go toward them.