SALT LAKE CITY — It is no surprise that, like most things we buy, we have to pay taxes when we purchase a home. But, unlike sales tax, we have to pay taxes on our homes on an annual basis. That tax, called property tax, is typically assessed by the county and often paid for with our mortgage payments, so it can actually be a process that takes place without much thought on the part of the homeowner.
However, as with all aspects of home buying and home ownership, I advocate that homeowners and those looking to purchase their first home understand this process and expense. Homes are, after all, one of the biggest investments in our lives; it is smart to know how to make and nurture that investment wisely.
<span style="font-weight:bold;font-size:18px;color:#2354ac;">The process </span>
Homes are assessed on a regular basis by the county (or other municipality, but most often the county) to evaluate their individual values. This assessment takes many aspects into consideration, including a home's site or land, the building itself, any new improvements or renovations and the value of similar homes in the area. When a home is renovated or sold, it is reassessed. Otherwise, a home is assessed on a predetermined and fixed assessment schedule.
Then, each year, homeowners receive a property tax assessment in the mail that shows the property's assessed - and thus taxable - value. In addition to showing the taxable value, the document shows the amount the homeowner will owe on the property based on the municipality's tax rate and that taxable value. Typically, a homeowner will receive their assessment documentation months before the tax payment is actually due, which allows for time to contest and appeal to the assessor's office.
<span style="font-weight:bold;font-size:18px;color:#2354ac;">Taxable value vs. retail value</span>
Because assessing every home every year would be an undertaking not becoming of our tax dollars, counties (and other municipalities) evaluate many homes' values by considering the selling prices of similarly-sized homes in the area; these homes are called comparables.
This is a way to more generally assess the multitude of homes, but does often mean that sometimes a home's taxable value (that which the county assesses and designates) is not the same as what the home would sell for, known as its retail value. If a room has been added to a home, its retail value might have increased significantly, but until that home is properly assessed, its taxable value may not increase.
<span style="font-weight:bold;font-size:18px;color:#2354ac;">How is it paid?</span>
More often than not, mortgage lenders help homebuyers better calculate the total cost of their home by rolling the estimated property tax amount into the monthly mortgage payment. That way, homeowners are not caught by surprise by a large tax payment due each year. This is done by creating what is called an escrow account, in which the estimated tax amount is accrued each month and then paid out annually when the bill is due. With an escrow account, the property tax assessment and bill will clearly say, "this is not a bill" so that homeowners do not accidentally pay twice. However, without an escrow account, homeowners will need to watch for and pay their property tax when the bill comes, which is often in the late fall.
<span style="font-weight:bold;font-size:18px;color:#2354ac;">What if I'm paying too much?</span>
As the housing market rebounds and home values rise, the concern of paying too much property tax becomes less and less likely, but it is good to know what to do just in case. Should a person get the property tax assessment and find that their home is assessed to have a higher taxable value than the home's presumed retail value, they can contest it with the county (or other assessing locality).
Within 60 days of receiving the assessment, the homeowner can make an appeal. This would require having a real estate professional gather comparable sale prices of similar homes in the area and sending a request letter to the county assessor. For more detailed and specific information on the appeal process, visit your county's tax website or office.
As Benjamin Franklin noted, "In this world nothing can be said to be certain, except death and taxes." Thus, as I recommend with all home-related issues, make sure you have a trusted team of real estate professionals - from your Realtor to your mortgage originator and everyone in between - so you can ask questions when they arise. Stay informed and be prepared, and you will be able to manage your biggest investment wisely.