Housing Values Down… Property Taxes Up

Posted by Jim DeBellis on May 22nd, 2011

It seems counter-intuitive at first, but as our homes become worth less and less the property taxes we are required to pay keep increasing. Housing prices have been decreasing at a rate of 18 percent a year since 2006, according to Fox Business, but during the same period property taxes have been going up at a rate of 7 percent a year.  And the 2010 census shows that revenues from property taxes increased from $365 billion to $410 billion from 2006 to 2008. How can this be?

Part of that equation makes sense. Property taxes do not represent a percentage of value so much as they represent a share of the revenues required to run the local government. Let’s say your township has 1,000 homes with an average value of $200,000, and they need to collect $2 million dollars to meet their budget requirements. Each home would be taxed, on average, $2,000, or 1% of its value.

However, a couple years later each home is worth $150,000 and the government needs $2.25 million for its budget. You might expect that your property taxes should decrease by 25 percent, as did the value of your home. But, instead, each home will now have to pay $2,225, or 1.5% of its value in order to meet the budget.

Other factors play into the tax increase as well. Much of the money for local and county services comes from the state, and some of the state money comes from the federal government. If the federal government cuts some funding to the states, those cuts may be passed on to the local level. Also, governors and state legislatures may also cut or refuse to increase state taxes, so those lost funds will have to be made up for at the local level through property taxes, especially if the funds are for schools and vital services. It should all come out in the wash if your state and federal taxes are lower, but, well…it never does.

There is one area you can watch out for that could save you some real money on your property tax: assessed value. Many county and local governments are slow to adjust the value of your property downward for tax purposes and may be taxing you on value that has already been lost. There are simple appeal procedures, which are very common these days, that you can follow if you can demonstrate that the tax base of your home is actually much lower than the assessed value. If you are paying 1.5 percent of your home’s value in tax, that means you can save $150 for every $10,000 that your home is over-valued.