I recently received a somewhat startling letter in the mail. The county I live in wrote to notify me that they’ve determined that the fair market value of my home has increased an astonishing 25% in the last calendar year. In general, I’m all for someone telling me that one of my assets has experienced outsized growth, but not so much when it’s the tax man giving me the “good” news.
I wasn’t surprised that the property value increased. Partially because it’s natural for property to appreciate but mostly because the city receives a sizable amount of its revenue from property taxes. That said, the amount of the increase was a little jarring and would quickly wreak havoc on my annual budgets…if the increase was something more than a proposal. The fact is, until the appeal period is over it’s a somewhat arbitrary number.
Everyone knows this right?
Until recently, I assumed everyone appealed their property taxes on an annual basis. Not only is the appeals process fairly straightforward but any number of attorneys are willing to do it on a contingency fee basis. If we can all agree that money saved is money earned, than the opportunity to save on taxes with minimal to no effort seems like a no brainer. However, according to the National Taxpayers Union, less than 5% of US households appeal their property taxes! Moreover, an estimated 30-60% are clearly overassessed.
Why is No One Appealing?
Why aren’t people appealing? I conducted an informal poll and I found three main reasons. Spoiler alert, all are quite lame.
First, is the confusing nature of the property tax formula. Many jurisdictions have an overly complicated formula that can be more than a little intimidating. In my county we use a market value for the property, a state equalizer, and a level of assessment to calculate the tax. But the reality is, regardless of the formula used by your jurisdiction, they all hinge on the assessed value of the property. The lower the assessment, the less you’ll pay. When appealing an assessment, the best way to make your case is to present the assessor with comparable properties that sold for less than the value assigned to your property.
Second, is the limited time given to appeal. Appeals must occur during the appeal period, and for many counties that period is only open for a few short weeks a year. If you blink, you’ll miss the opportunity. That said, the appeal period is announced well in advance by the assessors office and the appeal can be done in the same day, so there’s no reason that time should be an issue.
Lastly, its our hatred of fees. Every appeal period, I get a few dozen letters from billboard attorneys hawking their services for anywhere from 15-50% of the savings from the appeal. I get it. If I don’t want to pay fees for my index fund, why would I want to pay fees to an attorney to find a few comps when I could go to Zillow and do it myself? The answer to this is, 1) if you’re anything like me, you won’t get around to doing it and you’ll miss the deadline; and 2) just as importantly, while you may find some serviceable comps, a good attorney with access to a good database will find the best comps.
As if saving money wasn’t enough of a reason. The one saving grace for overpaying your property taxes was the SALT deduction. Prior to the Tax Cut and Jobs Act, you were able to fully deduct any taxes paid to your state and local government including your property taxes. Now, you still keep that deduction but you’re capped at $10,000. For high income earners, their state income tax and property tax can easily be many multiples of this number making the SALT limitation incredibly punitive. If you’ve never appealed your taxes before, this deduction has limited the damage; but with the new cap on this deduction, you’re losing a valuable offset.
So, do yourself a favor and google “XXXX county assessment deadline”. If you missed this years open period, calendar the dates for next year. If you haven’t, go to your county assessors office and learn how to file an appeal or engage an attorney or tax expert to do the work for you. I used a service last year and saved 18% over my prior years bill. Here’s hoping for similar success this year!