How the assessed value of your property affects your taxes

When selling a home or property, you’ll want to ensure that you get it assessed before putting it on the market. The property’s value assessment will help you determine it’s property tax bill and aid in how much it will sell for. Whether you’re selling a home or property, everyone should know what assessed value is, how it’s determined as well as the factors that feed into your taxes. 

What is Assessed Value and how is it calculated? 

Assessed value, by definition, is “the dollar value assigned to a home or other piece of real estate for property tax purposes”. The assessed value takes into account multiple factors, like location, comparable home sales (if your property is a home), as well as the age of the property, size and much more. It takes into account the condition of the property, local property values, and market conditions as well. Most analytics are based off of real estate data calculated for each neighborhood and surrounding area. The assessed value can change over time and it is up to the assessor to periodically visit the property and adjust the value if applicable. 

Property taxes are calculated using the equation: 

Fair Market Value × Assessment Ratio × Millage Rate = Effective Property Tax

Fair Market Value is “the price an asset would sell for on the open market”. Millage rate, according to Investopedia, is “the tax rate applied to the assessed value of the property”. 

An example of this is a property with a fair market value of $500,000 in a neighborhood that uses a 25% assessment ratio and a millage rate of 40 mills, would have the annual property tax rate of $5,000. The equation would like this:

$500,000 X 0.25 = $125,000 X 0.04 + = $5,000 

How does the Assessed Value of your property affect your taxes?

The assessed value of your property plays into fair market value, which in turn affects your homeowner’s property tax bill each year. Remember: fair market value and the assessed value of the property are not the same thing, however, they do affect each other. 

Every year, during tax season, each county has a rate in which it is taxed. Every county is different, and you want to be sure you know your tax rate, so you can plan accordingly. For example, if a house or property was appraised for $400,000 and you live in a county with a tax rate of 5%, you would owe $20,000 in taxes ($400,000X0.05). 

What can you do if you think your assessment is too high or too low?

Tax assessments are important due to the fact that they affect how much you pay into the government. If you think your assessment is too high or low, you have options and aren’t alone; about 60% of individuals feel as though they are paying too much. You can file an appeal with the local assessment office. In filing, you would go through the process of explaining your situation as well as an assessor coming in, again, to do an assessment. There are fees that need to be paid in order for this to occur; be mindful of the cost before you act. It can get pricey. Be mindful that there are dispute deadlines to meet as well. You can check to see when the deadlines are using the National Property Tax Group calendar

Are there any tax breaks for homeowners in Texas that you should know about?

In Texas, there is a lessened state property tax due for homeowners. This is called a homestead exemption. The homestead exemption allows homeowners to lessen their property tax based on the value of the property. The qualifications for a homeowner’s principal residence are…

  1. The individual must be the one filing on the home. It cannot be a corporation or business entity. 
  2. They must use the home as their primary residence on January 1st of the tax year. Any individual age 65 or older or those who are disabled qualify for homestead and it applies to the entire tax year. They must, however, live there starting January 1st of the year filed. 

An example of the homestead exemption is if your home is appraised for $75,000 and you are allotted a $25,000 exemption (the amount mandated for school districts), you will pay school taxes on a structure set at the value of $50,000. 

How has the assessed value of your property changed over time, and what impact has this had on your taxes?

The assessed value of your property can change over time. Factors such as home improvement, guidelines set by districts, neighborhood value as well as location affect the assessment value. That is why, when doing taxes, we suggest individuals to have an assessment done every so often. It does not have to be yearly, however, every 5 to 10 years is a comfortable time to do so. 

Remember: when the value of your property goes up, so do your taxes. In assessing, you ensure that you are paying the correct amount of taxes, as well as gaining profit if you do not have to pay as much. 

Should we be concerned about rising property values and the effect they have on our taxes?

Property value is at a new height due to the pandemic, as well as the economy, which is affected by many factors. Many people, when discussing the housing industry, mention how high prices for housing have gotten; this is why. As property value rises, as does assessment value, which in turn means you might be paying more on taxes than you normally would.

Have questions about what you’re paying for taxes? Want to know more about the process of how your taxes are assessed? Contact Texas Property Tax Reduction and we will get you set up with not only the best tax preparers in the business, but the best people in the industry. 

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