BEND, Ore. (CNN/Money) – While some homeowners have been cashing in on rising property values, many have been feeling the squeeze of higher property taxes.
"Obviously, many homeowners expected an increase due to higher property values," said Pete Sepp, senior vice president of communications for the National Taxpayers Union, an group that advocates lower taxes. "But many homeowners have had serious sticker shock."
For state and local governments, property taxes represent the single largest source of tax revenue. Nationally, property tax collections totaled $297 billion in 2003, according to the Census Bureau, after a 5.7 percent annual increase for each of the last five years.
For homeowners, however, property taxes represent the single largest home-related expense outside of their mortgage. And while all-time-low mortgage rates have allowed homeowners to cut their monthly payments in recent years, spiraling property taxes have negated much of that savings for some.
"This is a back door way of increasing taxes," said Richard Roll, CEO and President of the American Homeowners Association (AHA), adding that homeowners in some cities have seen increases of 20 percent to 50 percent over the last few years.
65,000 tax calculations
According to estimates released by the District Columbia in August, homeowners in the largest cities in the 50 states and D.C. with property valued at about $255,000 paid an average of $2,836 in property taxes in 2003.
But property tax bills vary significantly from city to city. Owners in Bridgeport, Conn., paid $8,605 for this hypothetical property, according to estimates, while owners in Birmingham, Ala. paid just $988. (Click here to see the full list.)
Though states have their own laws regarding how property taxes are levied, local governments have quite a bit of say in what tax rate is applied and how property is assessed. In fact, more than 65,000 governmental units have taxing authority, along with their own rules and procedures for levying taxes, according to the AHA.
To calculate property taxes, local jurisdictions generally multiply the tax rate, or mill levy, by a home's assessed value. For example, a town with a mill levy of $20 for every $1,000 of assessed value might charge a homeowner $2,000 for taxes on a house assessed at $100,000.
It's not always that simple, of course. Some jurisdictions base their assessments on a home's market value, while others take only a percentage of a home's market value. Still others base their property taxes not on market value but on replacement costs.
One solution to a high tax bill
According to the National Taxpayers Union, in fact, as much 60 percent of all taxable property in the United States may be over-assessed. Yet, only about one in 50 owners challenge their assessments.
Errors are common, according to Roll, because assessors often use trending or indexing to calculate home values. For example, an assessor might assign values to hundreds of houses at a time based on general characteristics, such as square footage, without actually seeing the property. This isn't exactly accurate if the houses around you have been remodeled while yours is circa 1960.
"Make sure you're not being put into a class of comparables that you shouldn't be," Roll said.
Simple errors are also to blame. Often, your assessed value is incorrect because it was based on incorrect data. Your assessor may have based the calculation on four bedrooms, when really there are only three. Or, he might have missed or miscalculated your square footage or overlooked a defect on your property, such as a leaky roof or cracked wall.
If you suspect this could be the case, make an appointment with your town or county's assessment office. (This information may also available online.) There, you can check your property card for errors, compare your neighbors' property cards with your own and get a clear explanation for how the value of your house was calculated.
To appeal your assessment you will need to do some research and possibly hire an appraiser, but you do not need a lawyer. The AHA recently published a Property Tax Reduction Toolkit, available free online if you register for a trial membership with the AHA. The National Taxpayers Union charges $6.95 for its booklet on fighting property taxes.
"You can determine whether you have a case in the space of an afternoon,"said Sepp. "Your chances for success are pretty good."