As housing prices continue to climb, many homeowners are discovering a less welcome trend: higher property taxes. With home values on the uptick, tax assessments—which are based on property values—are following suit, leaving many with heftier tax bills.
In the United States, each local government determines its process for assessing property values and every state has its own method for calculating property taxes. Typically, an assessor will estimate a home’s market value during a reassessment period, and that value will be used to calculate the amount of tax owed based on the local tax rate.
The states with the highest property taxes often coincide with locations of high property values. For example, states such as New Jersey and Illinois have some of the highest property tax rates in the nation. In these states, homeowners are burdened not only by their expensive properties but also by the high percentage they must pay in taxes on those properties.
Moreover, it’s not just the wealthy who are affected by rising property taxes; middle-class homeowners often feel the pinch as well. As neighborhoods improve and become more desirable due to various factors like increased safety or better schools, property values rise accordingly. However, wage growth does not always keep up with rising housing costs, meaning that even as some homeowners’ properties become more valuable, their ability to pay higher taxes may not improve at a commensurate rate. This can lead to a phenomenon known as ‘house rich, cash poor,’ where people’s net worth is tied up in their homes’ equity without actually having the liquid assets needed to cover increased living expenses including higher taxes.
In addition to individual states with high rates, certain metropolitan areas see especially high property taxes due to hyper-local demands and funding requirements for city services and schools. Cities like New York City, San Francisco, and Boston come with hefty price tags for homebuyers both in terms of purchase prices and ongoing property taxes.
To mitigate these costs, some homeowners may qualify for exemptions based on age, disability status, or veteran status which can offer substantial relief from property taxes. But for those who don’t qualify for any deductions or exemptions, these rising taxes can be a significant financial burden.
Ultimately, while increasing home values can signify financial health and often wealth accumulation through real estate equity for many homeowners across America, they also come with the double-edged sword of higher property taxes—a fact that many are acutely aware of as assessment notices arrive in their mailboxes. As communities grapple with how best to fund public services through taxation while ensuring residents aren’t overburdened by taxes on their homes’ increasing values, this issue remains at the forefront of many local government discussions.
