Understanding Property Taxes: What Every Homeowner Should Know

As important a decision as buying a house is, the process often involves paying numerous property taxes. These taxes are levied on real estate and are based on the specific property and its assessed value. Depending on the various factors, they can range from 5 to 20%. That’s why every homeowner must understand the property taxes that you are responsible for paying.

Paying property taxes can feel overwhelming at times. However, understanding the property taxes can help you save money and ensure you are paying the correct amount. You must also know how these taxes work to manage your finances.

Understanding Property Taxes

First, the basics! What is a property tax? It is the amount you pay for possessing real estate, including land and buildings. Local governments usually assess these taxes and use them to fund various public services, such as schools, police, and fire departments. They are also used for local infrastructure projects, such as roads and bridges.

Property taxes often rely on the assessed value of the property, which its local assessors determine. These are the most common forms of revenue levied on homeowners and must be paid every year.

How to Calculate Property Taxes?

Property taxes are calculated based on the assessed value of a particular property, including the local tax rate. Local assessors evaluate the value of the property based on numerous factors, including its size, location, and condition.

Local governments usually set the local tax rate for different properties which is expressed as a percentage of the assessed value of the lands, buildings, or other possessions. For example, if a particular property’s assessed value is ₹100,000, and the local tax rate is 1%, you need to pay a property tax of ₹1,000.

The basic property tax rate for residential properties in Chennai is between ₹0.60 and ₹2.40 per square foot. The property tax rate in Chennai for non-residential developments ranges from ₹4 to ₹12 per square foot.

Property taxes are different across regions and states because their value depends on the location of the property. For example, property taxes in Delhi are higher than in other parts of the country. The same goes for Bangalore, which has higher property tax rates than other towns and cities.

Calculation of Property Taxes in India

The assessor can estimate the accurate market value of a particular property by using three methods.

• Sales Evaluation:It involves checking the value of the property by using comparable sales in a particular area.
• Cost Method:Here, the property value is estimated by checking how much it will cost if you were to replace it.
• Income Method:This involves checking how much income you can make after renting out the property.

Things Homeowners Should Know About Property Taxes

Owning a home can be a wonderful feeling. Yet, it also comes with the responsibility of paying property taxes. You always need to know how much the property tax costs and be prepared accordingly. Here are a few things every homeowner should know about property taxes:

1. 1. You May Incur Penalties For Not Paying Property Taxes
   The penalties for not paying property taxes differ from one state to another. Interest fees apply if you don’t make your property tax payments on time. These fines may increase significantly over time. Municipal authorities may choose to send notices, place a lien on the property, or even file a lawsuit to reclaim the unpaid taxes.
2. 2. You Can Also Pay The Property Tax With A Credit Card
   A few cities or states may allow you to pay the property tax by credit card. However, most people do not consider it a sensible option. This is because you may be charged a 2% fee on the transactions. This means that when you pay a bigger sum, like the property tax, the charges incurred on the card may add up to a lot.
3. 3. You Can Get a Tax Break Because Of Property Taxes
   Owning a home enables you to take advantage of tax deductions and rebates on your next billing cycle. You can also deduct what you pay in property taxes throughout the year. This applies when you file your federal income tax return. This particular tax break reduces the amount of tax owed by you. Moreover, it can also help you qualify for a refund. For this, you must ensure that you pay your property taxes on time.
4. 4. You Can Pay the Tax Through Escrow
   Several mortgage companies make the process of paying property taxes more manageable. Yes, you can easily pay your property taxes out of an escrow account that you fund. You can do so by paying 1/12 of the tax bill with each monthly mortgage payment. All you need to do is follow up now and then to check that all your tax bills are being made on time. This is because the lender associated with you is paying these bills on your behalf.
5. 5. Some People Might Be Eligible For A Property Tax Exemption
   You may be exempted from property taxes in certain cases. The most common example is of military veterans. These exemptions are always different from state to state. Homestead exemptions also reduce property taxes for all homeowners in a jurisdiction. This happens with the sheltering of a certain amount of the home’s value from tax.
6. 6. You Must Try to Get An Estimate Of The Property Tax Before Purchasing The Property
   You can contact the local tax assessor to understand the property tax you need to pay. This involves learning as much as you can about property taxes and the additional income tax rates when purchasing a house so you know how much budget to allocate towards it.

Final Thoughts

Understanding how the property tax is calculated and paying it on time can help avoid fines. Following the rules can also prevent legal action for non-payment.

Then comes the advantage of certain exemptions offered to certain property types or incomes that can save money in the long run. Hence, every homeowner needs to stay informed about the property taxes of their region. This will help you make sound financial decisions when it comes to real estate investments.