What Are Real Estate Taxes?
Homeowners must budget for mortgage payments, maintenance and repairs, and potential homeowner’s association (HOA) fees. However, they must also consider the cost of real estate taxes, payable to their local government. Real estate taxes help pay for communal areas in a homeowner’s local jurisdiction but can also be expensive. Prospective homeowners must consider the cost of real estate taxes when determining their overall budget.
What Are Real Estate Taxes?
Real estate taxes are recurring charges that homeowners must satisfy that go toward local government spending. Those who own personal property, offices, and investment properties must pay real estate taxes for their area. The local government will collect the tax and may use it for education, fixing roads, or maintaining parks.
Real Estate Tax vs. Property Tax
While taxpayers may use the terms interchangeably, there are differences between real estate taxes and property taxes. Real estate taxes apply to a homeowner’s property and land, while property taxes can include other pieces of tangible personal property, like a boat or a car. State governments collect property taxes, while smaller local governments collect real estate taxes.
When homeowners discuss their high tax rate, they’re likely referring to their real estate taxes. Many homeowners use the terms interchangeably.
Real Estate Tax Cost
The amount that a homeowner pays for real estate taxes will depend on the value of their home and its location. Large cities typically have higher tax rates than smaller rural towns, and each local government sets the tax rate for their area. Attom found that the average single-family homeowner paid $3,901 in real estate taxes in 2022.
A tax assessor will determine the tax amount for your specific property. They consider the characteristics of your home and its overall condition during the assessment. Assessors will multiply the total assessed value of your property by the local tax rate to calculate the total real estate tax amount. If you renovate your home down the line, it could increase your property value and your real estate tax amount.
Budget for Real Estate Taxes Before You Purchase
When looking for available properties on RealtyHop, buyers can view an anticipated real estate tax amount. On each listing, buyers can view the “Property Facts” to see how much they should expect to pay for real estate taxes.
In New York City, those who purchase a co-op unit will not pay their real estate taxes as a separate bill. Instead, they will pay the co-op board, which will submit the real estate taxes to the local government. New York City real estate taxes differ from other areas of the country, as an assessor will also consider the potential rental income in their calculation.
Your local government will determine how often they choose to collect real estate taxes, but most homeowners pay their share once or twice a year. Owners should save some of their monthly earnings to avoid an unexpected lump sum. They can place the money in a high-yield savings account until their payment due date.
Some governments will allow homeowners to pay their dues monthly to avoid a significant charge. You can inquire with your real estate agent or local government at the time of the purchase to see if this option is available. Homeowners should regularly consider their real estate taxes when setting their monthly budgets. Failure to prepare to pay their taxes could have longer-lasting effects on their financial situation.
Unpaid Real Estate Taxes
A homeowner who does not pay their real estate taxes risks their local government placing a lien on the property. The homeowner must pay off their lien and satisfy the debt with the local government before selling their home.
Prospective buyers may discover that the home they wish to purchase has a lien against it for unpaid real estate taxes. They can try to negotiate with the sellers to have them satisfy the lien. If someone buys a short sale listing, they must satisfy the real estate tax lien themselves. Depending on market conditions, they may be able to negotiate a lower sales price to compensate.
In severe cases where homeowners do not pay their property taxes for several years, a local government may file a lawsuit to acquire the deed from the homeowner. In New York City, buildings can go to auction after the government acquires the deed.
Real estate taxes help local governments collect funds to finance various community projects. Homeowners must pay their property taxes and can use online resources to determine how much they can expect to contribute yearly. White homeowners may not appreciate the financial burden of a real estate tax, they can benefit from community advancements like road repairs and firefighter services.