Property taxes are an invaluable asset for state and local governments. Not only do they help fund government and public services, but they are also essential in building strong, safe, and happy communities. Property taxes are an essential part of the homeowner experience. Veteran homeowners understand this.
Novice homeowners, however, underestimate the importance of property taxes, costing them thousands of dollars each year. That’s money wasted that could easily be reinvested into the property. Here’s everything you need to know about property taxes so you don’t end up wasting thousands of dollars as well.
What are property taxes and why are they important?
Property taxes are not the same as property values. Instead, property taxes are taxes levied on the value of a property by a governing authority, jurisdiction or municipality in which the property is located. State and local governments rely on property taxes in order to operate public services. In fact, property taxes make up 34 percent of tax collections for most state and local governments.
Property tax rates vary between state and local jurisdictions. Additionally, many states have imposed restrictions on property tax rates and property tax revenue resulting in dramatically different tax liabilities between neighbors with similar homes. For example, in California property tax rates are limited to 1 percent and only incrementally increases until a house is resold. Thus, Orange County property tax differs greatly from cities like Anaheim and Laguna Hills.
Property taxes are important because they help fund government services; in particular, education. According to experts, property taxes are directly responsible for 1/3 local education funding. In 2012, school districts across the nation collected $181 billion from property taxes, which made up 82 percent of their revenue for that year.
How is the revenue generated from property taxes used?
In addition to education, property tax revenue is used for other public and governmental services including:
- Fire-fighting services
- Water and sewer services
- Garbage pick-up
- Law enforcement
- Recreation facilities
- Road maintenance
Essentially, property taxes are an investment in local city governments and municipalities. Revenue generated from property taxes typically goes into bettering local communities by providing better roads, recreational facilities, and schools.
While property taxes are not the same as property values, property taxes can certainly affect property values in the long-term. This is why property taxes are extremely important and homeowners should take them seriously.
Why should you pay your property taxes on time?
Failure to take property taxes seriously can have tremendous financial consequences. Homeowners who fall behind in property tax payments can end with a home in foreclosure. Property tax liens have the highest priority over other forms of liens. Should you fall behind on your payments your loan servicer might take action against you and foreclose on your home.
This is a frightening prospect and should be avoided at all costs. You shouldn’t lose your home because you failed to pay property taxes on time. To avoid such a drastic form of action, you should find a tax professional who can help you with your property taxes.
Should you hire a tax professional?
In order to keep track of your property taxes and avoid losing your home, you should find a qualified tax professional who can help. Finding a professional isn’t as difficult as it may seem. Look for a professional who can help you with your specific case and understands your local property tax guidelines thoroughly.
While commercial tax offices are useful for tackling common tax concerns (such as filing a run-of-the-mill tax return) they aren’t typically equipped with handling more complicated tax filings. Finding a trained and licensed CPA specialist who can help guide you through this process is the best thing you can do for yourself.
One of the best ways to find a tax professional is through referrals from family and friends. Often they can point you in the right direction, especially if they worked with the professional before. It’s also important to find someone you feel comfortable with, has a professional demeanor, and is licensed in your state.
Homeowners should also keep in frequent contact with their tax professional. Developing a relationship with a trained tax professional will not only save time and money, but it will also likely save you from the possibility of losing your home forever.