Property Taxes

Real estate property taxes are calculated using a percentage called the mill rate or millage. You might’ve seen or heard in the news that local property taxes are going up something like $1.63. Technically one mill is $.001 or one tenth of a penny. One mill is also one-tenth of one percent or .001. There are 10 mills in one percent or one penny.

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Most municipalities don’t state their property tax rates in mills. They state that the rate is something like $63.21 per $1,000. If a property is assessed at $200,000, the property taxes would be $63.21 x 200 or $12,642. If you think that’s expensive for a $200,000 house, talk to a few homeowners in New Jersey!

If you’re buying a home or even a house to flip, it’s crucial that you pour over the fine print and learn all you can about the property taxes. Normally a seller is responsible for paying the property taxes through the date of the sale. However, towns and cities have different due dates for property taxes. In some rural towns the taxes might due once a year. If the property taxes are due in March and you purchase the home in February, the seller should pay the taxes for the previous March through the date of the sale. However, the taxes can’t be paid because the tax bill isn’t due until March. In this case, you’ll receive a type of credit for the property taxes due from the seller. When the dust settles and the debits equal the credits, you’ll end up paying for the property taxes only from the date you purchased the property.

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If you’re purchasing a home without the assistance of a realtor, make sure to check the property tax records. Visit the town or city tax assessor’s office and ask if the property taxes are current. The last thing you want to discover after you’ve purchased a home is that the property taxes haven’t been paid for years. In many areas, third party investors are allowed to pay off back property taxes and charge insane rates of interest. If the seller of the home you just purchased didn’t pay the taxes last year, an investor might’ve paid them and now expects you to pay 15% interest. Without a realtor doing his or her homework, you could very well find yourself in this situation.

Unpaid property taxes are sometimes an excellent way to purchase a house for pennies on the dollar. It depends entirely on your area. Some towns and cities can take possession of a property for unpaid taxes. Tax liens are very common. If you’re working without a realtor, the process of finding town or city-owned properties is very simple. Go to the town tax assessor’s office (in some areas the town clerk’s office) and ask to see a list of town-owned properties. If you spot a property you’re interested in, visit the property and check it out. If you like what you see, you should proceed immediately to the county or parish registry of deeds. The registry clerk will show you how to look up the property by address. Search for any and all public records pertaining to the property. Even though the town now owns the property, there may be an outstanding loan or lien against the property.

One term you’ll frequently hear is tax reassessment.  An assessor will visit every property in town and determine it’s new assessment value. Assessed values are often lower than the current market value of a house. A home with a current market value of $300,000 might be assessed at $180,000. In that case, the assessment value would be 60% (of the current market value). It’s not unusual for towns and especially major cities to increase the assessment value. Instead of 60%, the assessment value might increase to 70%. The assessed value of your $300,000 home would then be $210,000. When the next property tax bill came out, you would definitely notice the increase in property taxes. If the mill rate was $30 per $1, 000, the tax bill at 60% assessment would be $5,400. The tax bill at the increased 70% assessment would be $6,300.

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