Owning your own home sometimes feels like you need to specialize in tax law come April 15—one of the most befuddling subjects for homeowners concerns property taxes. While it’s widely understood you pay tax for owning property, it’s less universally understood why or how it’s paid. Fortunately—as this article will demonstrate—you don’t need to be an accounting virtuoso to have a good grasp on how property taxes affect you as a homeowner.
What are property taxes?
Property taxes are taxes billed to individuals (and other legally recognized entities including businesses) who own property.
Why do I pay property taxes?
Property taxes aren’t much different than the taxes you pay when purchasing a cup of coffee. Local municipalities and state legislatures rely on these funds to support critical public infrastructure like road maintenance, public transportation, school systems and salaries for government employees. In another sense, property taxes are essentially the bill you pay for access to these public services.
How are my property taxes calculated?
Your individual property taxes are primarily determined by where your property is located and its estimated value.
To begin with, property taxes vary widely across the country—in recent years, U.S. states with the highest property taxes included New Jersey, Connecticut, and New York; U.S. states with the lowest property taxes included Hawaii, Alabama, and Louisiana.
Why do property taxes differ from state to state?
Every state has a unique way of calculating property tax but it all essentially boils down to a percentage of the property’s perceived value for the area. Do you live in a state on the higher end of the property tax spectrum? The homes in your area may be considered more valuable compared to the national average, thus driving up your property taxes.
Keep in mind, every state has their own infrastructure and local institutions to support—some states may assign more property taxes to homeowners because they have a greater financial commitment to supporting things like local construction, education systems, and government workers like police and firefighters.
Are there any states without property taxes?
No—every state imposes property tax.
Can I deduct property taxes on my return?
Property taxes are deductible when you choose to itemize your return. If you’re not familiar with the different filing methods, read on.
Every taxable year, you have two options to file your return: itemize deductions OR opt for the standard deduction. Decades ago, taxpayers only had the option to itemize their taxable deductions—a process many people found confusing and requiring diligent record keeping over the course of the year. In order to simplify things, the IRS eventually gave people the option to file under a standard deduction—a predetermined amount based on factors like your filing status (single, married, etc.) and age.
Below are the standard income tax deduction amounts for 2019,
- Single
- $12,200
- Married filing individually
- $12,200
- Head of Household
- $18,350
- Married Filing Jointly
- $24,400
While opting for a standard deduction is a useful way to simplify your taxes, itemizing your deductions can potentially yield a greater return depending on your taxable situation.
*Editor’s note: Paying high property taxes doesn’t necessarily mean you’re better off itemizing your tax deductions. Take a look at the standard deduction associated with your filing status—if you think itemizing your deductions could potentially exceed this cap, you might be better off. For more help determining which filing option is right for you— look at the itemized or standard deduction when you file your taxes.
Leave a Reply