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Real Estate Taxes

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In the United States, real estate taxes are levied at either the municipal or county level. These taxes are the primary source of income for local governments. Determination of how much those taxes will be is based on the value of your property. There are several different real estate taxes that you should be aware of.

Property tax

This is the real estate tax that you'll run into most often. Whether you have just moved into a home or have been living there for decades, you'll have to pay your property taxes year in and year out.

Calculating your property tax is pretty easy. It is a simple percentage, sometimes called the mill rate, of the assessed value of your property. This percentage is usually between 0.1% and 3.0%. So, if you're home is worth $300,000 and you're facing a 3.0% property tax, that comes out to $3000 for the year. Just remember that the percentage of property taxes is subject to change.

Real estate transfer tax

If you are purchasing a home, you may or may not have to pay a real estate transfer tax. This is dependent on the laws of individual states, counties, and municipalities. This, like property tax, is most often based on a percentage of the assessed value of the property being purchased. The percentage in this case can fall anywhere between 0.01% and 4.0%.

Real estate transfer tax is usually levied against the buyer, but some jurisdictions split it evenly between the buyer and the seller.

Estate tax

Estate tax, sometimes called inheritance tax or death tax, is applied to the taxable estate of a person who has died. This tax is incurred when the property of the deceased is transferred to a new owner, whether via the will of the deceased or by state laws regarding intestacy (when no valid will exists). Estate tax can be levied by both the federal and state governments.

Property value assessment

So, you've read a lot about how these taxes are based on the assessed value of your home. Now, it's time to see how that assessment is done. There are two components that are assessed. The first is made up of all the improvements on the land. The term improvement refers to all relatively permanent structures that exist on the property. These could include buildings, fences, sheds, garages, pools, etc. The second component is the land itself.
The appraiser who makes the assessment may work either directly for the government or for a private party hired by the government. He or she will be looking mainly at three things:
  • An estimation of what the property, including all improvements, would sell for
  • The cost of restoring the land and replacing the improvements, were they to be destroyed
  • The selling prices of other properties in the area
If you feel that the assessed value of the property you are purchasing or selling is inaccurate, it is possible to appeal it. To do this, you must contact the assessor's office and follow the steps that they outline for an appeal. Generally, it is the responsibility of the person making the appeal to provide proof to the assessor that the property is not worth what the original assessment says it is.

Real estate taxes may seem like a pain, but, hopefully, you now have a better understanding of those fees and how they're calculated. Knowing this information may help you be more prepared for those taxes when you have to pay them.

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Adam Mandelbaum  Posted by Adam Mandelbaum on May 14, 2010

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