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Real Estate Taxes

Posted on Thursday, March 9, 2023
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by AMAC, D.J. Wilson
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Real estate taxes and property taxes are terms that are often interchanged; however, they are not the same thing. Per Bankrate, real estate taxes refer to real estate only, whereas property taxes can apply to other types of personal property such as a car or boat. Property taxes rates vary by location, so somebody living in Honolulu, Hawaii will pay a different rate than someone living in Trenton, New Jersey, as an example. Property taxes that are paid late are subject to interest and penalties. If real estate taxes go unpaid, the government can place a lien on the property. If said home is sold, the proceeds from the sale of that property will go toward the tax debt. So, paying real estate taxes on time is a serious business.

Real estate taxes are paid on residential and commercial properties owned by individuals or legal entities. They are levied by local governments and must be paid by all homeowners. These taxes are based on one’s local government tax rate, which vary even across zip codes. Essentially the land and permanent structures affixed to the land are taxed. Tax assessors generally value the property every one to five years and charge the owner of record the given rate as set by the taxing authority. Real estate taxes apply to investment properties as well as primary residences. Renters do not need to pay real estate taxes as they are the landlord’s responsibility.

High real estate taxes can affect what one may afford when purchasing a home. In general, real estate tax rates are higher in large metropolises, such as New York City and San Francisco, as opposed to tax rates in rural areas. However, there may be exceptions. Real estate taxes are considered a yearly fee and they are included in most mortgage payments along with principal and interest paid. Rather than pay one lump sum at year end, lenders divide the total property tax by 12 months. That allocated amount is included in the monthly mortgage payment due. Mortgage lenders provide estimates of what homeowners owe, so sometimes a refund is necessary if one has overpaid. Or, extra funds are required if the estimate falls short.

Unfortunately, real estate taxes don’t go away once a home is paid off. Folks still need to continue paying. Depending upon regional regulations, one may break payments down into smaller ones or pay a lump sum. If you have trouble paying real estate taxes, it’s important to address it by contacting the billing department of your local government. Some assistance programs may be available. For example, in the City of Philadelphia, if your Real Estate Tax increases by more than 15% from the previous year, qualifying individuals may be able to pay the excess amount later or defer payment until a property is transferred or sold. However, a minimal interest rate may apply. Additionally, the deferred amount may be subject to a lien. Most city or local governments offer income-based assistance programs for owner-occupied households and senior citizens. Additionally, tax abatement and exemption programs may exist, which may excuse taxpayers from paying portions of real estate taxes.

Nobody ever declared, “I love taxes! Bring more on!” To the contrary, tax increases are generally frowned upon by most as they impact one’s financial situation. But it’s important to keep up with tax payments to avoid losing one’s home. Particularly, for seniors on fixed incomes, high real estate taxes may ultimately influence important decisions, such as where to live out the retirement years. Though paying taxes is not fun, real estate taxes are specifically essential as a good amount of the money paid goes toward important functions. This includes supporting local police and fire department, schools and education, public pools and libraries, programs for senior citizens and the handicapped, and road maintenance as given examples. Things like local tourism and taxes contributed by industry and businesses in your area can help stabilize property taxes. Additionally, real estate taxes can be deducted on a Federal Income Tax Return subject to limitations.  

In summary, real estate taxes must be paid by anyone who owns a taxable property. They are levied by the county and/or city government, plus other local taxing authorities, with the funds going to their budget. Tax rates vary from place to place, with some metro communities facing high property taxes, though exceptions apply. While real estate taxes may influence life decisions, the tax money collected  helps to pay for important local services. Those facing difficulties making real estate tax payments or living below certain income levels should apply for local programs that may provide tax breaks. Know that tax bills may go down or up when homes are reassessed or when the local rates are updated. Since tax laws are complex and subject to change, if you are uncertain about what you are eligible for, it’s in your best interest to seek the advice of a tax professional.

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