Lower property values can mean lower property taxes

The collapse of the real estate market has created a tax-saving opportunity for homeowners, who can appeal their property taxes in light of declining home values.

“Property tax appeals are especially popular among homeowners today due to sharp declines in house values throughout the U.S.,” said Marcie Geffner, a columnist for the mortgage website HSH.com. “The reality is that not all tax assessors have kept up with these trends, which means some homes may be over-valued and thus over-taxed.”

Up to 60 percent of the nation’s taxable property may be over-assessed in the post housing bubble era, estimates the National Taxpayers' Union.  Home prices have fallen steadily since peaking in 2006 and now stand at 2002 levels, according to the most recent Case-Shiller Home Price Index. Prices are even lower in particularly hard-hit areas.

Property taxes form the budgetary backbone for local governments, making up nearly 45 percent of the general revenue collected by municipalities, said the NTU. The revenue funds local services, such as schools, police and fire departments and libraries. Local governments tend to make up for lost property tax revenue by increasing other types of taxes, usually sales taxes. According to an NTU statement, “It looks like taxpayers are caught in a never-ending cycle of shifting the tax burden around from group to group.”

Local tax collections declined 0.8 percent in 2010, indicating local governments are experiencing the impact of falling housing prices, according to the Rockefeller Institute. Property tax revenues, which the institute estimates make up two-thirds of local tax collections, fell by 3 percent in the last three months of 2010, while local sales taxes increased 3.7 percent.

The assessed value of a property is determined by a government tax assessor, and is used as a base for calculating taxes. Property taxes are derived by multiplying the assessed value by the tax rate.

Assessed values can differ from a property’s market value or appraised value. They typically reflect the value of a property in relation to other properties in the area. Successful property tax appeals show that an assessment is unreasonable, excessive or discriminatory.

Homeowners wishing to appeal their taxes can start by asking their local tax assessor for information on how to file an appeal. Contact information for local taxing authorities can usually be found on a tax bill. Property owners should also be aware of deadlines that create annual “windows” for filing tax appeals. Publishers, websites and lawyers offer services to homeowners seeking to appeal their assessments, but many homeowners do the job themselves.