How does property tax work and why do property taxes go up? Generally, property taxes are real estate taxes your local government calculates based on your property value (ad valorem tax). The tax is generally due on an annual basis, and the amount fluctuates based on changes to your property value.
You may be wondering, why did my property taxes go up? Well, there are several things that make your property taxes go up. Property tax is based on your town, state, or municipality’s tax rate, as well as your property value. Changes to either of these tend to be what drives property taxes up. Some property tax changes are out of your hands, but other factors are in your control. And if you think you’re being taxed unfairly, we can show you what steps to take to dispute your property tax bill.
What Home Improvements Increase Property Taxes?
Some homeowners wonder what the difference is between functional renovations versus more luxury-focused projects. Does a patio increase property taxes? How much will my taxes go up if I build an addition? Does a detached garage increase property taxes? Will a new roof increase property taxes as much as a swimming pool?
What causes property taxes to increase is the change to your property value, whether the renovation was all function or just for fun. A detached garage that adds $40,000 of value will drive up property taxes more than a new roof that adds $12,000. One way to guesstimate property tax increases is to calculate your renovation’s budget, check the typical ROI for this kind of project, and multiply that against your local property tax rate.
So a $50,000 renovation with a 70% ROI should result in roughly a $35,000 home value increase. If you live in California and pay a 0.76% property tax, then you can expect to pay an additional $266 ($35,000 x 0.76%).
What Other Things Make Property Taxes Go Up?
You’ve kept your home just the same, but your property tax jumped up anyway. What gives? While in some areas property taxes increase every year, some external factors can affect your home value (or even perceived value) or tax rate. Here are some common things that make your property taxes go up.
Changes in the neighborhood
If your neighborhood was just featured on a “hidden gems” list, that could be a clue to your higher tax bill. When an area becomes more popular, driving up sales prices on other homes, it can increase your home value without you ever picking up a hammer.
Moving to a new area is also likely to affect property taxes, because different cities and states set different regulations for how property tax works. For example, California has a 0.76% effective real estate tax rate, while Oregon’s is 0.90%. Move to New York, and your new property tax rate is 1.71%. Even if you buy a home that’s valued exactly the same, your tax bill can change when you move.
A “no visitors” policy
For the home value assessor, that is. You don’t have to allow a tax assessor inside your home, but that tends to make assessors suspicious that you’re hiding expensive home improvements. Some towns have policies in place to assign the highest assessed value to the home in this case, and there’s no strong way to dispute the assessment without allowing a tax assessor inside.
In other words, your home may be taxed according to its perceived value or potential value, rather than the actual value an assessor could calculate if they can view the property in person.
State and local budgeting
Your property tax may increase when state governments fund a service like repairing roads — or even if the state cuts funding. Why? If the state withdraws funding for a service and leaves the bill for local government, your county may raise property taxes to close the budget gap.
Why Did My Property Taxes Go Up in 2020/ 2021?
A coronavirus-related economic slump in addition to widespread civic unrest means funding is scarce at a time when some public services like education, healthcare, and emergency services are working especially hard to serve communities in need. City and state governments may turn to property tax increases to raise money, especially if federal aid isn’t sufficient to meet their needs.
How Much Can Property Taxes Go Up in a Year?
How much your property tax can change in a year depends on where you live. Some states, such as California, establish limits for how much the assessed value and property tax can increase in a given year. The city of Nashville, Tennessee, on the other hand, is making headlines for a “painful but necessary,” double-digit tax hike.
One sign that you may see increased property taxes soon is if your local schools are underfunded. Increasing property taxes for homeowners is often a major source of funding when governments put money into school programs or renovations.
On the other side of the spectrum, new legislation can also have a positive effect on your property taxes, like the tax breaks for older and disabled homeowners in California’s Proposition 19 that was passed in November 2020. Previously, property tax increases were restricted for Californian homeowners to a certain extent, discouraging homeowners who have lived in their homes for a long time from moving to a newer home, for fear of losing their tax break. However, since Prop 19 has passed, homeowners 55 and older are able to pay a lower, blended tax rate using the taxable value of their current home as well as the value of their new, more expensive home.
What Can You Do About Raised Property Taxes?
Wondering what can make property taxes go down? In some cases, you may disagree with your local government on your home’s assessed value and what that means for your tax bill. If that happens to you, you have recourse to challenge the assessed valuation. Your tax assessor or local tax authority should be able to provide you with information on their specific dispute process, but it can help to gather a few materials in advance.
First, check on deadlines to submit a dispute. Different states allow different windows of time, often 30 days or 90 days, so it’s important to know how quickly you need to act.
Next, gather records on your home and nearby properties. Square footage, number of bedrooms, and sale prices on comparable listings all help present a more accurate picture of your property value. Information on the assessed value of other homes is also often public information. If you can show that another home with the same features as yours (or even additional ones, like a deck or pool) was assessed lower, you may be able to convince the assessor that there’s an error with your home valuation or request a second home appraisal to make your property taxes go down.
If you are a senior, a veteran, or have a qualifying disability, your state, county, or municipality may also offer reduced taxes. Check with the tax bureaus in your area to see what exemptions they offer and whether you qualify.
Using Home Equity Access to Help Pay for Increased Property Taxes
At Noah, we believe that homeownership is a good investment. But homeownership is also unique in that it does require additional cash over time – there’s routine upkeep like yearly maintenance, plus emergency home repairs will pop up and property taxes that may increase over time. And when expected bills happen, tapping into your hard-earned home equity should be an option without resorting to selling your home or incurring more debt. Your home is often your largest asset, and you should be able to access that wealth when you need it.
Home Equity Access is one of the few options available to homeowners that allows them to tap into their home equity without incurring more debt. Another benefit of using a financing option like Home Equity Access is that the funds you receive can go to anything you like. If property taxes rise, you can use home equity funds you received from Noah to pay those bills, in addition to other important goals.
Will Home Equity Access raise my property taxes?
A home equity agreement affects the amount of equity you have in your home. What it doesn’t change is your home’s overall value. Your property tax rate depends on the property’s assessed value, not your equity share, so HomE Equity Access should not raise or lower your property taxes.
What’s more, if you access your home equity through a financing agreement with Noah, you’ll have additional support if you run into trouble paying the bills. Our Homeowner Protection Program can help our homeowner partners pay unexpected property taxes, mortgage payments, or emergency home repairs.
If you’re taking the leap to fund a new journey for your family, like launching your own business or putting kids through college, unexpected bills are the last thing you need. Property taxes are a necessary part of homeownership, but that doesn’t mean your tax bill is set in stone. Staying informed about your home’s valuation compared to other houses in your area can help you prepare for tax time and ensure you’re paying what’s fair.