How To Reduce Your Property Tax Bill

If you own real estate, you pay property taxes. Even in "tax-free" states like New Hampshire or Texas, you still have to pay this type of tax.

If you have a mortgage, then usually part of your mortgage payment includes a portion to be set aside to cover this cost. Taxes + insurance = mortgage escrow. Even if you've paid your house off, you still have to pay property taxes. Dang...

This post will explore how you can challenge the county's assessment, followed by one scenario where you might not want to do this.

Assessment vs. Appraisal - Don't Be Confused

An assessment is researched and defined by your local municipality, typcially the county. It is based on historical property data and sometimes door to door interviews with homeowners.

Appraisals are different. They are conducted privately, usually paid for by a property buyer. When you finance a property with a mortgage, the lender wants proof of the value of their investment, i.e., the house you're buying.

An Example of An Assessment

Every so often, 1-3 years, your county will send you an official assessment statement. Here's my most recent one:

This description points out much of the obvious, except for we have 4 bedrooms, not 3. Since I really don't want a high assessment as this point, I'm not going to update my county. Remember, a higher assessment means higher property taxes.

Why My Assessment Is Way Off Base

According to Jefferson County, Colorado where I live, my house is assessed at $348,580. That's nice... However, notice the Prior Year Actual Value of $269,000. Evidently the county thinks my property is increased in value by 28.5%.

We all know real estate prices have rebounded from the crash of a decade ago, but $79,580 in growth in a two year time period? C'mon...

In 2014 my property tax was 7.96%, and my property tax bill totaled $2,034.60. If the county keeps me at the same rate for this year, I could estimate my property tax to be $2,775. That's over $700 extra I'm not excited to cough up this year.

What I'm Doing About It

Legally, every county must offer a window to contest their assessment. I've contested my assessment every year I've owed a home. I'm been able to reduce my assessment every time.

When they send their assessment notice, they'll include a section to protest. This protest allowance is the mechanism I've used.

If the county is going to reduce your tax bill, they'll want evidence. That burden is on you. This is where spending 5 minutes on a real estate site like Zillow (if you click that you'll see my neighborhood) comes in handy.

For free, Zillow lets a user search similar homes in your neighborhood that have recently sold. The key is to sort the recent sales for homes similar to yours. For example, if your home is 3500 square feet with 4 bathrooms, comparing that to a 1500 square foot home with 1.5 baths won't cut it. Bedrooms and bathrooms should be the same, and the square footage should be close.

My Completed Protest

Here is the format my county requires. I've listed similar homes to mine that have sold within the county's required comparison window.

There wasn't enough room in this post to copy the rest of the document. On my form I took the average sell price as the basis for my home's assessment. Throw a signature on there and that's it!

Why Doing This Matters In My Case

I'm not selling my home this year, or next. I don't need a high assessment to help sell my property. Selling a house is largely influenced by what a buyer is willing to pay based on the neighborhood, as well as any updates you've made. An assessment influences price very little.

For me, it's all about paying a lower property tax bill. If the county behaves anything like it has in the past, they won't ratchet the assessment all the way down (I'm protesting for a $284,333 assessment), but they'll probably lower it some.

In the end, I'll have spent 10 minutes on Zillow as well as completing the county's form. This will save me several hundred dollars. And as you'd expect a financial planner to say- that's money you can invest!

If you have any questions on how to get the best price when selling your home, reach out to your favorite real estate agent or turn on HGTV.

Thanks for reading!

#taxes