Property taxes are a critical component to consider when pricing real estate rental fees. In some states or jurisdictions, these taxes can amount to high figures dependent on several factors. Therefore, paying property tax is a serious responsibility that lies upon your shoulders as the real-estate owner. Wrapping your head around how the whole taxation process works is very important, so how do property taxes work? Let’s find out.
What are property taxes?
Each country, municipality, or council needs a budget annually to satisfy service delivery within its jurisdiction. These funds could get used for infrastructure development, maintenance, repairs, etc. There is so much else that municipal budgets accomplish, but one of such authorities’ primary sources of income derives from property taxes.
All taxable properties within the respective jurisdictions are liable for paying their taxes annually to fund the municipal budget. In a way, these taxes also keep rental property owners functioning. Without the cash influx to the city, there wouldn’t be a reliable water and electricity supply due to crumbling infrastructure.
With all the services provided to homeowners, landlords have a liquid investment with a high probability of continual profitability. So, property taxes are not totally a rip-off, especially for landlords that rely on municipalities to continue providing the services they do for their clientele.
How are property taxes calculated?
Each jurisdiction’s tax rate differs from the other because of the most common techniques of calculating property taxes across the country. Calculating property taxes is seemingly a very complex process that usually gets divided into a couple of action steps. How so?
First and foremost, the mill levy gets calculated, considering all the other properties within that district. Then, once the total value gets calculated, the mill levy is calculated and multiplied by your property’s value.
There are also different ways to calculate your property’s value, and an assessor may choose any one between these three:
- Sales evaluation
- Cost evaluation
- Income evaluation
Saving costs by getting the best services from specialists in property management Boulder can help cover the taxes efficiently regardless of the valuation method used. Evernest, Mynd and APM provide the best property management services and advice to landlords renting out their homes or purpose-built property in Boulder and other areas of Colorado.
Are property taxes recalculated every year?
Property owners are rightfully concerned about the frequency of tax recalculation. Constantly changing expenses make the business of real estate rentals seem more unpredictable and not that much of a liquid investment anymore.
Drastically changing fees recalculated yearly could repel clientele, but taxes don’t usually get recalculated annually. In most cases, the assessors come by once in five years. As a result, landlords have some legroom to prepare for the next valuation where they might need to increase rent due to rising costs related to property taxes.
Some jurisdictions might opt for a smaller gap between tax evaluations, but that tends to be unique scenarios applicable to that particular city or district. You should confirm with your local authorities during the entire taxation process, including when tax rates get recalculated, to better prepare yourself for any changes.
Understanding which types of properties are taxable could help property owners know when they might be exempt. However, property owners also need to understand what categories of properties require tax. For example, vacant land is not tax-exempt.
If you own vacant land, you’re still liable for property taxes even if no building or structure has gotten built on it. The rates for vacant land are generally not that expensive, but plots with municipal infrastructure underneath tend to have taxes that cost just a little bit more than others.
Tax-exempt properties include any buildings or land owned by religious and Non-Profit Organizations. These two categories of property are tax-exempt across all states, with other specific exemptions and incentives within each jurisdiction. You can check with experienced tax attorneys on any exemptions your property could be liable for if the tax is hefty.
Paying real estate taxes
After the evaluation, property owners are notified of their property’s value and then sent a tax bill at a later stage. Once the tax bill gets sent, a lien is attached. That lien can get removed off your property after the fees are satisfied with the municipality or council.
As the property owner, you are responsible for paying all taxes related to the real estate you’re renting out. Failure to pay these taxes could result in the property getting seized by local authorities. Alternatively, the lien could get sold to a third party responsible for debt collection and potential property seizure.
Paying real estate taxes is a serious responsibility that should not get overlooked, especially if you are profiting from the property. In most cases, the tax could get covered conveniently, but if it is too expensive, consider laying a grievance at a local courthouse.