Can You Lower Your Property Tax Bill Without Moving?

By Christy Bieber Markets Fool.com

If you own your own home, you know you face a property tax bill each year. Some homeowners pay property taxes directly and others have them paid through a mortgage lender out of an escrow account, but they are inescapable for every property owner. On average, U.S. households spend $2,149 each year on property taxes, and in some states average payments are thousands of dollars higher.

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If you have a large bill from your local government, it can take a significant chunk of your housing budget. The question is: Can you do anything about high property taxes, other than moving to a different house? You just may be able to. These steps will help you determine your options for slashing your bill.

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Understand how property taxes are calculated

To lower your property taxes, you need to understand how they work. Rules for property taxes are set locally, but most localities use the same basic calculation to determine what homeowners owe. This calculation involves multiplying the assessed value of a home by the mill level in the county.

The mill levy (also known as the millage rate) is determined by the revenue required by different taxing authorities -- like the county and the school district -- divided by the total estimated value of property in the taxable area. The mill levy isn't something homeowners have control over, although some locales allow votes on school district budgets, which can affect how much money the district needs.

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While you can't change the mill levy, you could potentially change your home's assessed value. Its value is assessed in relation to what your home is estimated to be worth. Counties may base this estimate on how much it would cost to replace the property, what the property would sell for on the open market, or the amount of rental income the property could make. Local assessors determine what valuation method to use and how often to reassess.

Other factors can impact your tax bill, too. For example, most counties allow exemptions to reduce the assessed value of your home or the taxes you owe -- more on that below.

Once you understand the basics of how property tax is calculated, you have a few options for trying to reduce the amount you owe.

Lower your property taxes through a reassessment

Between 30% and 60% of property in the U.S. is overassessed, according to the National Taxpayers Union Foundation. Everyone whose home is overassessed is paying too much in tax, but fewer than 5% of homeowners challenge their assessments.

The process for challenging an assessment differs from county to county. To start, obtain a copy of your property's records from your local assessor's office. If there are mistakes in square footage, number of bedrooms, or other key property features, the assessor may reduce the home's value without a formal appeal after you point out the error.

If there is no mistake, you'll need to formally appeal your assessment. Depending on where you live, this could involve submitting a simple form, paying a small fee, and potentially attending a brief hearing.

Whatever formal process is required, the key to a successful appeal is proving that the value of your home is less than the current assessment says it is. You can do this by providing a list of comparable homes in your area that have recently sold for less than your house is valued. The more comparable properties you can put on your list, the closer (in distance) the properties are to your home, and the more similar they are to your home, the better the chances this approach will be successful.

Another option: Hire a professional appraiser to provide an official estimate of your home's value. This is often the best approach, because it is difficult for a county appraiser or appeals board to argue with an official opinion. Paying an appraiser a few hundred dollars can be a better use of your money than hiring an attorney to help with your property-tax appeal, since completing the forms and attending the hearing are not complicated to handle on your own.

Lower your property taxes by claiming exemptions

Whether you appeal your assessment or not, you should claim all exemptions that can reduce your property-tax bill.

Most homeowners are entitled to claim a homestead exemption on a primary home. This allows you to avoid paying taxes on part of your home's value. For example, the city of Philadelphia allows a $30,000 homestead exemption; if a home there were valued at $200,000, the exemption would reduce its taxable value to $170,000.

Most localities have other exemptions as well. For example, in Hillsborough County, Florida, there are additional exemptions for disabled veterans, surviving spouses of veterans killed in the line of duty, low-income seniors, disabled individuals, widows and widowers, people who are blind, and elderly people who have lived in their homes for a long time.

When you are eligible for exemptions, you typically must apply for them. If you don't, you're leaving tax discounts on the table. You can find out about all of the different exemptions in your area by visiting the website of your local property-tax collector or assessor.

There is no reason to pay more than the minimum amount required by your local government for the privilege of owning your property, so be sure to learn more about appealing high assessments and taking advantage of local exemptions. You could save thousands of dollars over the years you live in your house, and you can definitely put that money to better use.

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