Tell me the Tax!

As a homeowner or prospective homeowner, understanding property taxes is crucial to managing your finances and planning for future expenses. In this episode of "Real Value," David Shelton, a broker with Century 21 Advantage, provides a down-to-earth explanation of how property taxes are calculated and the factors that influence them.

In most states, property taxes are based on the assessed value of your property, which is determined by local assessors. The assessed value is typically a percentage of the market value of your home, which can vary depending on the state and local regulations. In South Dakota, where Mr. Shelton is located, the assessed value is typically around 80% of the market value of the home.

One of the key factors that influence property taxes is the mill rate, which is the amount of tax levied per $1,000 of assessed value. The mill rate is set by local taxing authorities, such as school districts, cities, counties, and states, and can vary based on a variety of factors, such as the cost of providing services, the tax base, and the overall budget of the taxing authority. When the mill rate goes up, property taxes go up, and vice versa.

Another factor that can influence property taxes is the school district where your home is located. In many areas, schools are funded through property taxes, so the quality of the schools in your district can impact the value of your home and the amount of property tax you pay. This is particularly important to consider when buying a home, as you may be able to get more house for your money by choosing a home in a less desirable school district.

Other factors that can impact property taxes include home improvements, such as adding a deck or finishing a basement, and changes in the local real estate market. If you make improvements to your home, the assessed value may increase, which can lead to a higher property tax bill. Likewise, if property values in your area increase, your property tax bill may also go up.

It's important to note that property taxes are not the same as homeowner's insurance. Homeowner's insurance is a separate expense that covers damages to your home and belongings, while property taxes are used to fund local services and infrastructure, such as schools, roads, and emergency services.

If you're a homeowner or prospective homeowner, there are several ways you can manage your property tax expenses. One way is to make sure you're taking advantage of any available tax credits or deductions. For example, many states offer homestead exemptions or other tax breaks for homeowners who live in their homes full-time.

Another way to manage your property tax expenses is to appeal your property assessment if you believe it is too high. This can be a complex process, but it may be worth pursuing if you believe your property has been overvalued. David recommends working with a qualified real estate professional or tax attorney to navigate the appeals process.

Finally, it's important to budget for property taxes as part of your overall home ownership expenses. Property taxes can be a significant expense, particularly in areas with high mill rates or high property values, so it's important to plan ahead and make sure you have enough funds set aside to cover this expense.

Overall, property taxes are a complex but important aspect of home ownership. By understanding how they are calculated and the factors that influence them, you can make informed decisions about buying and owning a home, and ensure that you are prepared for this significant expense.