Property Taxes And The True Costs of Home Ownership

I’m currently 27 years old and I’m not yet a home owner. While some might consider it okay (including myself) I often debate whether I should be “throwing money down the drain” in rent or commit to buying a property. But wait there is a catch, I live in the greater New York City area. Not only are the real estate prices among the highest in the country, so are property taxes. Not many people take property taxes into consideration when purchasing a home but everyone should. This post will describe why accounting for property taxes from the get-go can not only help you take an extra vacation a year but also help you avoid having to sell your home when you retire due to your inability to afford it.

What are property taxes?

In the United States, most local governments (cities, counties or other municipalities) impose a tax on real estate which provides the majority of those localities revenue. This is often computed based on a fair market value which is determined by local officials. These monies are often used to fund local government services such as fire departments, police departments, and schools. While there is typically a correlation in paying higher taxes and getting better municipal services this is not always the case. Some geographies are disproportionately less advantageous to own property in.

Choosing where to buy matters, A LOT

When buying a house people consider things such as safety, quality of schools, and other amenities such as proximity to parks, beaches, commercial districts etc. Deciding on a home based on the property tax can help you save a substantial amount of money for retirement and help you stay there once you do. Let’s start by comparing property taxes at the state level with an average home value of $100,000 to make our math simple:

The property tax can be deceiving when you first purchase a home because many owners are unaware of reassessments or the action taken to recalculate the taxable value of the home. Sometimes supplemental bills and significantly higher taxes in future years can make a difference between an affordable and a ballooning mortgage payment.

The table above outlines the stark difference in property prices at the state level within the United States, but keep in mind that this trend holds true within states and even within counties.

Researching property taxes

When getting close to your home ownership decision contact the local assessor’s office to ensure you are not surprised by the future dues of your local taxes. You can supplement your research with tools like Zillow & Trulia which allow you to look at past tax assessments of the property, historical property value prices and trends in the property’s prices.

In this visual, you can see how an increase in the price for this property over time will translate into increased property taxes due for the next owner.

While you may want to invest in a property that will rise in value, depending on your expected holding time for it and if you plan to retire in it, you should ensure you can afford the property taxes in the long term.

Finally, make sure that you do research about tax breaks for homeowners in your state or locality. For instance, Broward County and Miami-Dade County, among other counties in the state of Florida provide what is known as the homestead exemption, which gives homeowners a tax exemption of up to $50,000 on the assessed value of the property if it is their primary residence.

Investing in real estate is one of the most important financial decisions people make and one that will have long-term implications for both your net-worth and your monthly budget. Make sure you consider property taxes in your decision]; this consideration can lead to a lot of savings and avoiding financial headaches.

This post was originally published at https://moneyqlip.com/