Homeowners in New Jersey paid the highest effective real estate tax rate in the country in 2016 at 2.29%, according to a report.
Other states in the region weren’t far behind. New Hampshire was 3rd at 2.1%; Connecticut was 6th at 1.91%; Pennsylvania was 13th at 1.51%; Massachusetts was 21st at 1.18%.
While property taxes play a critical role in funding public services (think schools, police, roads, etc.), the tax can be seen as an annual financial burden for homeowners – especially if you live in a state with a high effective rate.
Knowing how this tax is typically calculated can help you avoid unpleasant surprises, like a higher than anticipated property tax bill.
How is property tax computed?
The method for assessing the value of your home may be calculated by multiplying by the assessment rate. The value of your property may be determined annually, every other year, when the property is transferred or some other time, depending on your municipality.
For simplicity’s sake, if your home is valued at $500,000 and your town’s tax rate is $2 per $100 of assessed value, your property tax is $10,000 for the year.
Value may fluctuate
Remember that the assessed value of your property is not the market value but the taxable value. Although the assessed value reflects the market value – and changes in the market value affect the assessed value.
It is probable that the value of your property will change over time, which dramatically impacts the property tax assessment.
Key terms to know
The amount your property is worth for tax purposes is called “basis.” (And the initial amount you paid is called “cost basis.”) If the basis changes over time, which is likely, it is called “adjusted basis.”
If your property tax bill is based on current real estate values in your area, you can assume that there will be differences in the taxes assessed from year to year because of changes in the market value in your neighborhood.
Your property should increase in value either when improvements are made in your location, including streets, sidewalks, new parks or schools or when you improve your home with a kitchen upgrade, flashier landscaping, an addition, or building a deck.
You have the right to view or receive a copy of your property tax cards from the local assessor’s office, which provides you with information the town has gathered about your property over time. It also includes information about the size of the lot, the precise dimensions of the rooms, and the number and type of fixtures located within the home. Other information may include a section on special features, or notations about any improvements that have been made.
By viewing what your town has on file you can compare it to your property to see if there are any discrepancies. If there are inaccuracies that concern you, you can raise these issues with the tax assessor. The assessor will either make the correction and/or conduct a re-evaluation. Mistakes are not uncommon so it is worth your time to check the data being used for your assessment.
It’s important to note: you must pay your property tax on time. Penalties and interest will accumulate quickly. In the worst case scenario, you could lose your home if you default on your property taxes. If you are unable to pay, you should consult your CPA, attorney or the assessor’s office.
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Ken Bagner is a member of Sobel & Co. LLC. He is a member of the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants. Plymouth Rock Assurance in NJ is proud to partner with NJCPA to bring you valuable tips about your financial health. Qualified members of the NJSCPA can receive a discount on their car insurance through Plymouth Rock Assurance in New Jersey.