Factors that affect property taxes

Whether your mortgage is paid off or not, if you are a property owner, you must pay property taxes every year. The money collected from these taxes is used for several important local needs, such as city improvements and local government salaries. It is important to recognize the factors that affect the amount of property taxes you owe each year since it can always change. Some of these factors include:

1. Property’s Market Value

The market value of your home affects its property taxes. At the time of purchase, the market value of your property is always set by the purchase price. If you are purchasing a property from a short sale or a foreclosure, the property’s appraised value is used to set its market value. If you have owned a property for more than 3 years, its value is adjusted up or down by the county assessor based on a market analysis of similar properties in your neighborhood and tax code.

2. Physical characteristics of your home

Physical characteristics of your home will affect its property taxes, including the living area, garage size, etc. Cosmetic characteristics of your properties and the type of appliances you have do not affect valuation or taxes. However, if you take out permits to build out a property or to finish a basement, your property’s market value will be affected, and your property taxes may increase.

3. Number of garage stalls

Usually, the square footage of your garages does not count as part of the living area of your property and should not affect its building assessment. In Cook County, depending on the region you live in, you can have up to a three-car garage without it affecting your taxes. If you build a fourth garage, its area will be added to the size of the house and your property taxes will increase.

4. Market values of other properties in your neighborhood

If you live in an area with a lot of older homes and your property taxes suddenly start to rise, look around the neighborhood to see what is changing. In most cases, the culprit is newly constructed homes or properties selling at a higher value. The rejuvenation of your neighborhood has a huge impact on property taxes.  Come re-assessment time, the county assessor uses the mass appraisal method to re-appraise all properties in your neighborhood, and all new sales will definitely have a profound effect on your property taxes since they lift the market value of properties across the neighborhood. The effect is the opposite when the real estate market falls, and homes start to sell for far less than they used to. Depressed sales reduce the market value of your property and its property taxes, respectively.

5. Schools and community services

Roughly 45% of primary and secondary public school funding comes from property taxes. School districts that request more funding are likely to cause an increase in property taxes in the district. Similarly, community colleges also use property taxes to account for much of their funding, in addition to your local police station and fire department.

6. Location

In real estate, location is everything. If you decide to purchase a home located by a golf course, near a town center, or next to a nice lake, you will have higher property taxes. Houses located within city limits also pay additional city taxes. It might sound like a hassle, but when you sell a property that’s close to town with great amenities and within city limits, you will most certainly sell for more, and that makes for a higher tax bill.

7. Referendums

A referendum-related increase happens when voters decide to support certain community projects, such as new roads, new schools, and upgrades for structures. These projects often require greater financial resources than are available in your local community’s coffers, and as such often draw more funding from an increase to property taxes.

8. Decreases in state and federal aid

State and federal aid are often subject to decreases, forcing local governments to look elsewhere for funding. The services their aid-funded may have to make up for that loss through property taxes.

9. A number of businesses in your area

In most communities, businesses pay the bulk of all property taxes collected in any given year. When local businesses either shut down or relocate, it reduces the tax revenue collected in your local community and shifts the burden of property taxes back to homeowners. However, your local governments still need the same amount of money to conduct business. When revenue is lost due to businesses closing or leaving your community, the local government has to rely exclusively on homeowners to make up the revenue loss, and your property taxes will start to rise.

10. State and federal mandates

There are certain programs and services that local governments must provide by law. Part of the funding for them comes from property taxes, as these are commonly unfunded mandates. With an increase to the cost of living in your area, property taxes have to increase to ensure that these programs stay funded.

Since the mass appraisal approach used by the county assessor is never an exact science and always results in some properties being overvalued after the re-assessment of your entire neighborhood, it is very important to always check your property’s valuation in comparison to other properties in your neighborhood to make sure you are being fairly assessed. It is also important to ensure that the county assessor has a correct description for your property and that its physical characteristics and size are recorded accurately. In most situations, you cannot appeal the land assessment of your property, so the building valuation and assessment are the only things you can lower as part of any appeal.