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Are You Paying Too Much in Real Estate Taxes?

While there are many benefits to property ownership, there are also certain downsides. One of the most notable negatives of property ownership is liability of property taxes to local taxing authorities. Property taxes fund many municipal services, from education to emergency services.

According to the U.S. Census Bureau, the average American family spends over $2,000 a year on property taxes. But how many of those property owners are being over-charged? And for those over-charged property owners, what can be done to reduce excessive tax liability?

Learning the Basics of Your Property Tax Calculation

Property owners who think they may be paying more than their fair share of real estate taxes can seek a property tax abatement from their local taxing authority. To obtain a

property tax abatement, property owners must follow the formal abatement application procedure; it is important to note that directly asking the taxing authority to decrease a property’s tax bill will be automatically denied unless the procedural abatement steps are followed.

To be successful, property owners must provide evidence that their property’s assessed valuation is inflated; and that such inflation is resulting in an excessive tax liability. Property owners are generally successful in obtaining real estate tax refunds when they can prove the equalized assessed value of their real estate exceeded the property’s actual fair market value on the valuation date. To explain this in greater detail, we have defined some of these key terms below.

Fair Market Value

Fair market value is the value of a property that a consumer or business is willing to pay to the property owner and the property owner is ready to accept payment for the transaction on the open market, assuming that the circumstances of the transaction are normal and both the parties have no pressure on them.

Assessed Value

Assessed value is the dollar value estimate of the real estate used by local taxing authorities to make a calculation of the tax that needs to be paid by the property owner. The valuation fluctuates depending on the method of valuation applied; that is, a property valuation estimate will be different depending on whether the assessor used the market, income, or cost approach. The local taxing authority then generally levies from 1% to 4% tax on the property based on this value.

When equalized assessed value exceeds fair market value, file a real estate tax abatement.
Equalized Value

In certain jurisdictions, particularly those that do not perform annual revaluations on taxable real estate, taxing authorities apply an equalization ratio to the assessed value to obtain the equalized value. This is the common practice for New Hampshire taxing authorities. The equalization ratio is a mathematical ratio that, when applied to the most recent assessed value of real estate, updates the assessed value to current values. For example:

Greenacre performed the last revaluation of real estate in 2016, and will not perform another revaluation until 2021. Bob owns a piece of real estate assessed at $100,000 in 2016. Greenacre sets an equalization ratio of 98.2% for the 2017 property tax year. Bob’s equalized assessed value for the 2017 tax year is:

$100,000 ÷ 98.2% = $101,833

Therefore, Bob’s property will be taxed at a value of $101,833 for the 2017 property tax year.

If your Equalized Assessed Value Exceeds the Fair Market Value:

File an Abatement

If property owners conclude the equalized assessed value of their real property exceeds the fair market value, the owner should file for a property tax abatement. Real estate tax abatement applications are typically available from the local taxing authority, such as a local assessor or tax department.

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