How to Pay Your Property Tax Bill

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How to Pay Your Property Tax Bill

A property tax bill is an inevitable component of the homeownership process. Local governments collect these fees to assist support community-wide projects and services such as roads, schools, police, and other emergency services. Your property tax bill may be paid in two ways: as part of your monthly mortgage payment or straight to your local tax office.

Key Takeaways

  • Local governments collect property taxes to help fund community services and initiatives.
  • Property taxes are ad valorem taxes, which means they are based on the value of the property.
  • If you have a mortgage, you may be able to roll your property tax into your monthly mortgage payment. Otherwise, you must pay the tax collector directly.
  • You may also owe personal property taxes on assets like your vehicle, boat, or RV.

Ad Valorem Tax

Property taxes are ad valorem taxes, which means they are levied based on the assessed worth of an object. A property assessor estimates the fair market value (FMV) of your property—the amount that a willing buyer and seller would agree on in an open market.

To do so, the assessor examines the sales records of nearby comparable homes, known as “comps,” that are similar in condition, characteristics, and size. Other criteria that the assessor may examine include the property’s rental revenue history (or prospective), replacement costs, maintenance expenses, and any recent modifications you made to the property.

How Is Property Tax Calculated?

To calculate your tax bill, the tax office multiplies the assessed value of your property by the local tax rate. For example, if your property is valued at $200,000 and the municipal tax rate is 1%, your tax obligation will be $2,000 each year. Naturally, the higher the assessed value, the greater the tax burden.

  Gift Tax Definition

Some municipalities apply the tax rate to just a fraction of the assessed value. This is referred to as the assessment ratio. If your house is worth $200,000 and your county has an assessment ratio of 80% and a tax rate of 1%, your tax payment will be $1,600 ($200,000.80.01).

How to Pay Your Property Tax

In general, you may pay your property tax bill in two ways: as part of your monthly mortgage payment or directly to your local tax office.

PITI

If you have a mortgage, you may be able to roll your property taxes into your monthly mortgage payment. If this is the case, your lender divides your expected tax bill by 12 and adds that amount in your monthly payment, along with principle, interest, and private mortgage insurance—four fees known as “PITI” (principal, interest, taxes, and insurance).For a $2,000 yearly property tax payment, you’d pay around $167 every month. Your lender estimates your tax bill, so you may get a return if you paid too much, or you may be required to make an additional payment if the amount you paid falls short.

The entire amount of property tax you paid may be seen in box 10 (“Other”) on IRS Form 1098. If you paid $600 or more in mortgage interest in the previous tax year, your lender will give you this by Jan. 31. If you did not get a 1098, and you should have, contact your lender or visit their website. You may be able to reduce your tax payment by appealing your assessment (if you believe it is excessive) or determining if you are eligible for any exemptions.

  Global Intangible Low-Taxed Income (GILTI) Definition

Pay Your Local Tax Office

You will pay the tax office directly if you do not pay your property tax as part of your monthly mortgage payment. You should get a bill in the mail with payment instructions. You may have numerous payment choices depending on where you live:

  • By mail, using a check or money order
  • Using a credit or debit card online
  • Online payment through electronic check (eCheck)
  • Using a credit or debit card over the phone

In addition to the many payment choices, you may be able to select whether to pay the bill entirely at once or in monthly, quarterly, or biannual installments. Take note of any prepayment discounts—some towns provide a reduction if you pay early.

Personal Property Taxes

Real estate refers to your land and any item that is immediately related to it. When people discuss property taxes, they typically mean this sort of property. Of fact, you may owe more than one kind of property tax.

Personal property taxes may also be due depending on where you reside. Personal property is classed as either tangible (cars, boats, RVs, and airplanes) or intangible (stocks, bonds, insurance policies, and intellectual property). Personal property taxes, like real property taxes (those on your house), are ad valorem taxes, which means they are based on the value of the property.

Tangible personal property taxes normally decline from year to year as the value of the property diminishes. Calculated intangible value is used to determine the value of intangible personal property taxes (CIV).

The Bottom Line

Property taxes are owed by everyone who owns real estate, whether it be a home, farm, or unoccupied land. While you cannot avoid paying property taxes, you may deduct up to $10,000 in total state and local taxes, which includes property taxes.

  Harmonized Sales Tax (HST) Definition

If your property taxes are incorporated into your mortgage payment, keep in mind that before you can claim the deduction, your lender must pay the tax on your behalf. If you have any queries regarding the payment plan, contact your lender.

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