I know you have heard this saying by Benjamin Franklin, “in this world, nothing is certain except death and taxes.” Two terrifying words for most people. And just like types of death, there are different types of taxes; one of them is the property tax. You must pay this tax soon after becoming a happy homeowner and every year after that. It feels as if the government penalizes you for owning a home. Naturally, some people ask why do homeowners have to pay property taxes?
In the United States, a property tax is a tax levied by a local government based on a property’s value (including land.) The money collected is used to pay for social services such as fixing roads, schools, or firefighters. Homeowners have paid property taxes since the dawn of time and continue to do so in modern times in most countries.
Let’s start by learning what property taxes are.
What Are Property Taxes Anyhow?
A property tax is a type of tax levied by most countries on the value of a property. In the United States, the local government usually collects 97% of the total property tax, with 3% levied by State governments.
The main purpose of property taxes is to pay for services provided by cities, counties, and school districts. Some of these services include road maintenance, fire protection, snow removal, parks, etc.
Why Do Homeowners Have to Pay Property Taxes?
It is clear that the services provided by cities, counties, and school districts are critical for its citizens. Infrastructure and public services are vital for the community. Most people in the community take advantage of one or more important public services.
The property tax does a good job in collecting the money needed for these services. But why do homeowners have to pay for these services?
The answer is not straightforward, but I feel that a plausible explanation is that it has been there forever. It was there even before there was a monetary system when taxes were paid with a percentage of crops cultivated. I guess governments don’t want to change it since it is an effective way to collect the needed funds.
We sold a house in Pasadena, California, for which had to pay over $14,000 a year in property taxes. Our current house in Delaware has a better tax rate, but you also have to pay for owning a house.
I don’t feel that we paid our fair share of the taxes when we lived in California. State income taxes were already ridiculously high in my opinion. And on top of that we had to pay super high property taxes.
We were only my wife and me in the house and there is no way we were using $14,000 a year worth of services provided by the city. If you had a house with half the value of our house, you would have paid about $7,000 even if there were seven people living in that house.
Are Property Taxes an Unfair Tactic Dating Back to the Middle Ages?
A tax based on the value of the house and the land is clearly not always equitable because it doesn’t consider how much of the services provided by the city the homeowners use.
It is then no surprising that some critics argue that the property tax is unfair. Some, like Idaho Representative and lawmaker Jason Monks, considers it “evil.” In his opinion, it is comparable to the dark ages when the lord of the manor had to pay taxes to the kings and queens if they wanted to keep their land.
This video shows an interview with the Idaho lawmaker who introduced a bill to repeal the property tax statewide in 2020.
Unfortunately, this tax repeal would not eliminate the need to collect the money required to pay for the services provided by the cities. Instead of a property tax, the Idaho lawmaker proposes an increase in sales taxes.
So, one way or another, the citizens will have to pay for the services. Whether a sales tax is more equitable than a property tax is up for interpretation.
How Are Property Taxes Calculated?
Property owners collectively pay the total amount needed by these entities for these services.
To calculate the tax rate, you need to divide the total cost of services provided by the total assessed value of all the properties in the town.
Your property tax payment is calculated by multiplying the tax rate by your property assessed value.
An important point to make is that your property taxes does not go up automatically if your property value increases. If the cost of services has not increased, you should be paying the same amount as before.
But this is assuming all the properties assessed value have gone up proportionally the same as yours. If your property value is proportionally higher than other properties, your property tax amount may increase even if the services’ cost is the same.
I know this can be a little confusing –the video below does an excellent job explaining all this with examples.
How Do I Pay My Property Taxes?
There are typically three ways to pay for a property tax bill:
- You can write a check to the taxing authority when you receive your property tax bill once a year or every six months.
- You can pay online when the bill is due.
- The majority of homeowners have a mortgage. If you are among them, you can choose to pay your property tax together with your monthly mortgage payment. This is usually called an impound or escrow account.
Some homeowners consider this third option a convenient way to pay for the property taxes because they don’t have to think about when the tax is due every year. Some others don’t like to pay for it every month.
This third payment option may result in an unpleasant surprise for homeowners. If you have a 30-year mortgage, you’ll get used to the payment monthly (especially if it is a fixed rate). And you will be thrilled when you pay off your mortgage.
If your monthly payment includes property taxes, you may not realize that you need to continue paying it after your mortgage is paid off. That’s right! Property taxes never go away as long as you own the house.
What Else Do I Need to Know About Property Taxes?
Here are a few things to know:
- A tax assessor calculates your property tax
- If you don’t pay your property taxes on time you may be subject to interest and penalties
- You could be eligible for property tax relief
- You may qualify for a tax deduction for your property taxes amount
- If you disagree with the assessed property value, you have a right to appeal