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Property Taxes Explained

All property owners need to understand the property tax system and what they can do to mitigate their tax liability. Although many people don’t enjoy handling taxes, knowing how is important.

Richard Allen
Richard Allen

All property owners need to understand the property tax system and what they can do to mitigate their tax liability. Although many people don’t enjoy handling taxes, knowing how is important.

What Are They?

Property taxes are taxes paid by owners and corporations on commercial and residential property owned. Property taxes are regulated and controlled by your local government and the tax is based on your supposed property’s value. These taxes assessed go towards helping fund improvements in areas such as water and the sewage system.

How Do They Work?

Property taxes are usually assessed on an annual basis and your local government will send out the forms for your specific bill. These bills can be paid in a variety of ways now, be it online, at a currency exchange, or even at certain banks. It is best practice to keep your bills, payments, and receipts organized, as I have witnessed people pay and their local government claim no payment was received. If you fail to pay your property taxes, you will be subject to a tax lien on your property, which brings a slew of issues of its own.

What's A Tax Lien?

If you fail to make property tax payments, your local government can file a lien on your property. Typically you are given one to three years to pay the taxes owed, along with interest and any penalties that may add on. If for some reason that period expires without the tax bill being satisfied, a lienholder can initiate foreclosure proceedings to take ownership of your home. Why are they able to do that, you ask? Well, because that lien was a legal claim on your property by your local government, and real estate investors are capable of coming in and grabbing a property that they might not have the funds to get traditionally. You have to remember once that lien is on your property, the power of ownership changes.

How To Avoid A Tax Lien?

  • Pay the past due property taxes in full, with interest and penalties if included
  • File bankruptcy
  • Try working out a payment plan or a deal that works for both parties to wipe out debt

What You Can Do To Lower Property Taxes?

There are a few insider strategies you should learn more about if you'd like to reduce taxes. You can appeal your property taxes if you feel your home was assessed at a higher value than its actual worth. A lot of times people might feel this way from looking at their comparables in the area. You can hire someone to assess your home and that may cost you a couple hundred dollars, but that's money well spent if it results in a lower bill. On your property tax bill, this option should be in fine print as well and give you specific details on the steps to proceed for your particular location.

Another strategy is what we call a property tax freeze. A property tax freeze locks in the amount of tax you're paying so that no increases occur. Unfortunately, only six states offer the ability to freeze your property taxes. It should be stated that property tax freezes apply to disabled and elderly homeowners only. That said, the six states that allow property tax freezes are:

  • Connecticut
  • New Jersey
  • Oklahoma
  • Rhode Island
  • Tennessee
  • Texas

Depending on the circumstances, should your state not allow property tax freezes, see if it offers homestead exemptions. This exemption is generally property tax relief in the case of bankruptcy or the death of a homeowner. Both circumstances are worst-case scenarios but, regardless, it's best to be informed.

Why There Is An Inverse Relationship With Home Prices?

What made me read more into property taxes is the fact that, historically, in times of economic slowdown property taxes remain largely unchanged, while even growing in places such as Chicago. This is alarming with everything going on today as I write this. Despite failing economic conditions coupled with falling home prices, property tax burdens increase. It may not seem alarming initially as changes in property taxes lag the changes in home prices. Here in Cook County, our homes are assessed every three years as opposed to the rest of Illinois where homes are being assessed every four years. To me, it just doesn't make sense that our taxes seem to increase despite circumstances mostly out of our control, so be sure to be diligent in how you can reform your property tax liability.