Property Taxes 101 for Home Buyers or New Home Owners.

When you sign your closing documents as either a home seller or a home buyer, there will be a notation on the Settlement Statement regarding property taxes. There’s always a bit of a kerfuffle over property taxes so it helps to understand how they work.

If you’re a homeowner here in Arizona you’ve probably just paid property taxes as they’re due in April and October. Customarily property taxes are paid in arrears, meaning the first half of the year would be due after that first half is over (October), and property taxes for the second half of the year are due the beginning of the following year (April).

As a home buyer obtaining a mortgage to purchase a home, your estimated closing costs will include property taxes. And as the bank will likely be paying these for you, you may notice a prepayment of 3 months taxes to be collected at closing and placed in escrow. This is simply to ensure that the bank has sufficient funds to remit your taxes when they are due.

A home seller approaching tax due date, having not yet paid, will see the amount due noted on the settlement statement. Occasionally you might notice a property tax credit to the home seller. This would happen if the seller had prepaid their taxes, and are closing on their home before the end of the year.

How Are Property Taxes Calculated?

If you’re a new or soon-to-be homeowner, you may be wondering about how property taxes are calculated. Unlike the income tax and the sales tax you pay, the property tax is not based on how much money you earn or how much you spend. Instead, it is based solely on how much the property you own is worth. This is based on a comparison of the properties around you, as well as market factors.

The real property tax is an ad valorem tax, or a tax based on the value of property. Ideally, the owners of property of equal value pay the same amount of property taxes, and the owners of more valuable property pay more in taxes than the owners of less valuable property.

The tax is calculated using a variety of formulas and is based on a property’s assessed value – its full market value or a percentage thereof – and the tax rate of the taxing jurisdiction, minus any property tax exemptions, such as those offered for the elderly or veterans.

Property taxes are assessed by city and county governments to generate the bulk of their operating revenues. The taxes help pay for such public services as schools, libraries, roads, and police protection.

Re-valuations of the tax are often done periodically, although the time interval varies from state to state or, in some states, from town to town, and can range from annual reassessments to periods of ten years or more.

Note: Always review your property taxes carefully. If you feel you are being unfairly assessed or charged for something not present on your property or in your home (an extra bath for instance) there is a process for dispute. You can appeal for value or physical presence of an amenity, you can not appeal the tax rate.

Pay attention to deadlines. You generally need to initiate the process within 30 days of receipt of your tax bill, though the exact time frame may vary by jurisdiction and should be printed on the reverse side.

Be prepared! Get your facts straight. Have “comps” in hand. Know the differences in properties inside and out. First present your evidence to the assessors office for review, there may be a fee for actual appeal. You could hire an appraiser but your Realtor should be happy to help with this.

A couple of things to keep in mind: 1. The assessed property value may not be the same as market value. Your town or city can explain the percentage of value used in their calculations. 2. There is always the possibility that your assessment could be raised.