Understanding Property Taxes

There are two things in life: death and taxes. While you cannot control death, you do have a say in how your property is taxed when it comes to real estate. Most counties make allowances for decreased taxes using a class of exemptions.

When looking at properties to purchase consider the tax exemptions applied to a property and how they might change when you purchase it and convert it to a rental property.

How can you determine the exemptions attached to the property? If you are using a professional realtor, they should answer that question. Either way do your due diligence by going to your county assessor and determining the present exemption status. This can be done online or in person. Make friends with your assessor’s office as they can really become your partner in successfully navigating this matrix. The tax rate established by the county is applied to the assessed value of the property determined by the county assessor’s office.

So, what can be affected? Exemptions! Exemptions are applied to the assessed value which lower this taxable base. Much like deductions work with your income tax. For example, in my county an owner-occupied home is allowed a $6,000 dollar exemption on the assessed value.

Let me share a story. I was heading out to a listing appointment for a friend of mine. She had lived in the house for 24 years and was considering listing her home with me. As a professional, I checked the county site for her property taxes. To my shock I found that she was not taking advantage of her owner-occupied deduction. Doing so would have lowered her annual tax bill by $500. I immediately contacted the courthouse who clarified that with a trip to the office and a stroke of a pen, she could save that money on her upcoming tax bill. Imagine the joy on her face when I shared this little-known tidbit. (note I did not let her know that over the 24 years she could have saved around $11,000.)

One other exemption to watch for is the senior and senior freeze exemptions which lower the property tax amount. With the senior freeze, the property assessment is frozen all the way back to the year it was established.

When you are in your due diligence phase, contact your taxing office and ask them to help you determine what the new property tax might be when you purchase it. (assessed value without exemptions multiplied by the current tax rate).

Overall, the main point is that as an investor you need to understand what these exemptions are and how they affect property. Smart investors continue to educate themselves so that they can put more money in their pocket!