Challenging Your Property Tax

Property taxes aren't due with your tax return each year. Instead, you pay them to the local government (city, town, etc.) where you live. If you have a mortgage, you don't pay them directly; they are included in your mortgage payment. Every month, a portion of your mortgage payment goes into an escrow account from which the bank pays your property taxes when they are due.

Up to $10,000 (for married couples filing jointly) of property taxes combined with either state or local taxes can be deducted on your federal tax return. (See IRS Publication 530 for special rules and exceptions to deducting property taxes. It's important to note that you must itemize the deduction on Form 1040's Schedule A, but for some people taking the standard deduction is a better option. Property taxes may be deducted only in the year that you pay them.)

You don't want to pay too much in property taxes. While you can't change the property tax rate, you can change your house's valuation if it's assessed too high. How do you know whether your house is overvalued? How do you fight for correct valuation? Let's look at the steps.

Property assessment
There's no single formula used by local governments to assess property value, so you want to find out your local jurisdiction's considerations and rates. Then, you want to find out what you are currently paying.

Next, review your property assessment document. Even though it's an official document, mistakes do happen, and you don't want to be paying property taxes on a bedroom that you don't have. While you are at the assessor's office, you might get some insights into the process by asking how property is assessed for valuation; another resource for this information is your jurisdiction's website.
Finding out the assessment values of houses nearby can be quite helpful in understanding your own assessment. If your neighbor has a similar assessment even though their house has a swimming pool and three-car garage and your house does not, you have good reason to challenge your assessment.

If you are planning an addition or improvement to your property, remember that any permanent built fixture on your plot will drive up your assessment. Call a local building company or the local tax office to get an idea of how construction might change (or has already changed) your property's value.

Challenging the assessment
If you think your property is being valued too high, counter with a professional opinion. Ask whether your jurisdiction will let you hire an outside appraiser (not all of them will). A certified professional from the National Association of Independent Fee Appraisers or the American Society of Appraisers might convince the right people that your house is overvalued.

An alternative approach is to look at real estate websites to get the actual sale price of what's been sold in your neighborhood. These comparison prices might be helpful in persuading the assessors that they have overvalued your house.

It is important to understand, however, that your home's assessed value isn't always going to be the fair market value. Some assessments are determined by the cost to replace your home plus the value of the land. If your home is the smallest house among large, expensive houses, your house's value is going to increase based on its location.

During the appeal
Once you start an appeal, your house is in the spotlight. If you have any zoning or compliance issues, they'll be brought to light. Did you pull permits to do a bathroom remodel? Did the previous owners have permits when they redid the kitchen? Is the top step of your front stoop a half inch taller than code? You may want to consult with an experienced builder and/or a tax appeal lawyer before you begin your appeal.

If an assessor has questions about your property, they will likely contact you. Many assessments are done without entering the property, but if an assessor requests a walk-through, be there to explain any improvements or deficiencies.
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Correcting an overvaluation is not quick nor easy, but it helps you, the assessor's office and even the community to challenge what you believe to be a mistake.

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