How To Pay Property Taxes? How Does It Work?

How to pay property taxes

Regrettably, taxes are a must for everyone. They have grown to be a significant part of governmental budgets. Local and community services, educational institutions, public infrastructure, and other state and local initiatives depend on the funding. Taxes support these fundings. You must understand property taxes if you intend to purchase a home. However, there is one kind of tax – property tax which helps the local authorities in funding. Everyone has to pay property taxes if they own a house. However, property taxes are a requirement for all homeowners. But they are not all equal in each city.

What is Property Tax & How Do Pay Property Taxes?

Immovable property, such as buildings and land, as well as tangible personal property that is portable, such as machinery and equipment, are the main subjects of a property tax. The largest single source of state and local tax collection in the United States is property taxes.

How to pay property taxes

Property taxes are frequently referred to as “ad valorem taxes,” meaning that they are computed based on the estimated value of the property. State and local governments levy property taxes in the United States, and rates differ significantly between states and cities. Residents of Illinois, New Jersey, and New Hampshire pay property taxes comparatively higher than other cities. Whereas Alabama, Hawaii, and Colorado are the states with the lowest property taxes.

How to Pay

There are two ways to pay your property taxes:

  • Directly to your local tax office.
  • In the form of monthly mortgage payments.

Your monthly mortgage payment may include your property taxes if you have a mortgage. If so, your lender will divide your expected tax bill by 12 and add that sum, together with the principal, interest, and private mortgage insurance (collectively referred to as “PITI”), to your monthly payment. The lender will set up an escrow account and send the tax on your behalf after the mortgage payment.

Another option is paying the tax office separately. Your bill should come with payment instructions in the mail. There are a variety of payment alternatives available. The taxpayer can use eCheck, credit or debit card, or money order.  Moreover, you can choose whether you want to pay the property tax amount in one installment or break it down.

How to Calculate Property Taxes?

The basic formula to calculate property tax is

Property Tax = Assessed Value x Tax Rate

Your local taxing authorities determine a tax rate and then apply it to the value of your home in order to calculate property taxes.

Estimate the Worth of the House

Generally, you only pay taxes on your home’s assessed value. You are not required to pay taxes on its market value.

The house’s worth is determined by the assessment ratio for your state.  It is a proportion of your property’s market value that is subject to taxation.

For example, the market value of your house is $500,000, and the state’s assessment ratio is 50%. So, the house has a $250,000 assessed value or taxable value.

Depending on where you live and the local tax regulations, the officials may appraise your home every year, every three to five years.

Apply Tax Rate

To calculate your property taxes, multiply your home’s assessed value by the mileage rate. Mileage rates are stated as a tenth of a penny (or $0.001). So, if the value of a property is $500,000 and the mileage rate is 0.006, then you will pay 3,000 in property taxes.

Property Tax Deductions

Property taxes, as well as state income taxes or sales taxes, are all eligible for the state and local tax (SALT) deduction, which taxpayers can use to reduce their federal tax obligations (but not both income and sales taxes). The $10,000 SALT deduction quota was applicable after the passing of the Tax Cuts and Jobs Act of 2017.

Property Tax Deductions

To claim the SALT, you must itemize your tax deductions. It may be quick and simple to claim only the standard deduction on your tax return. However, itemizing deductions might result in a larger tax refund. It can be more effective if you reside in a city with high property taxes.

You will need a professional tax and accounting to help you out in your tax filing and to get the maximum benefits.

Exemptions on Property Tax

Deductions, credits, and exemptions might be able to help the taxpayers. However, not all homeowners can take advantage of every exception.

The homeowners can take benefit from homestead exemption and “circuit breaker” schemes. The homestead exemption lowers a primary residence’s taxable value by a specific percentage. States have different laws governing this exception. On the other hand, property tax circuit breaker programs lower property tax obligations for eligible elderly, people with disabilities, low-income residents, and others. The states that provide circuit-breaker tax programs also differ greatly from one another.

Through some tax deferrals, senior citizens, people with disabilities, and others can postpone paying their property taxes until the property is sold or the owner passes away.

Some people may find paying their property taxes to be a financial strain, and under such circumstances, it is best practice to reach out to professional CPAs.

Related post

How To Amend Articles of Incorporation in California
How Much Does it Cost to Hire a Bookkeeper
The Legal Liabilities of an Accountant?
Prepare Monthly Financial Reports for Long-Term Goals
Small Business Tax Deductions Checklist

Frequently Asked Questions

Why should I pay property taxes?

Depending on where your property is located, the municipal or county government will decide how to use the property taxes that are paid. The money will mainly be used for community services, road and highway building, and education.

What happens if I don’t pay property tax?

The unpaid sum first turns into a debt on the property. The taxation authority could then sell your property if you don’t pay the amount, perhaps through a tax foreclosure procedure. The taxing body may also sell the debt it is in possession of, in which case the buyer may be able to foreclose on the property or pursue other legal channels to get a handover.

How can I pay my property tax?

You can pay your property taxes either directly to the local tax authority or through mortgage payment. There are multiple payment options for taxpayers.
●     Paying through check.
●     Credit or debit card payment.
●     Online electronic check payment (eCheck).
●     Money order.

Is there are deductions available on property taxes?

Yes, your property taxes are deductible on your federal tax returns and state income tax. You can deduct state and local taxes (SALT) up to $10,000, but in order to do so, you must itemize your tax deductions.

Can I pay property taxes monthly?

The local authorities allow the taxpayer to break down their taxes in installments. So, you can pay your taxes monthly. Property taxes are annual taxes, but your mortgage firm can require that you put money into an escrow account each month to pay them so that they can transfer the property tax on your behalf.

Author Details
CPA , The Bookify
I am a Certified CPA with over 20 years in the field of accounting, and I write about how to save time on your taxes and get the most out of your investments.

Request a Quote For Tax and Accounting

Bookify Form
Get Started With Us

    +1 (888) 210-9890