Beyond the Mortgage: Budgeting for Property Tax Increases After Buying
You found the perfect house and are closing the deal. But hold on a minute – there might be a hidden cost you haven't considered: a potential jump in property taxes.
In many places, property taxes are based on a home's assessed value. This value is estimated by the local assessor and typically represents a portion (often around 50%) of the market value. However, there can be a time lag between when a home's value is assessed and when it affects your tax bill.
Let's break down the key factors that can impact your property taxes:
Taxable Value vs. Assessed Value: Many states have limitations (caps) on how much the taxable value of a property can increase each year. This protects existing homeowners from sudden spikes in their tax burden.
Uncapping After Purchase: When you buy a home, the "uncapping" often occurs. The taxable value resets to the current assessed value, which likely reflects 50% of the purchase price (which could be higher than the previous assessed value).
This can result in a significant increase in your property taxes the year following your purchase.
What You Can Do:
Factor in Potential Tax Increases: When budgeting for your new home, don't just consider the mortgage payment. Talk to your loan officer or realtor about estimated property taxes and potential future increases due to uncapping.
Research Property Tax History: See if you can find out the assessed value and taxable value of the property you're interested in. This can give you a sense of the potential tax increase you might face.
Consider Appealing the Assessment: If you believe the assessed value is too high, you may be able to appeal the assessment with the local assessor's office. However, keep in mind that this process can be complex and time-consuming.
For Michigan Residents:
Here's a helpful resource to estimate your property taxes before you buy:
Property Tax Estimator: https://treas-secure.state.mi.us/ptestimator
***Reminder*** Property taxes are an ongoing cost of homeownership. By understanding how uncapping works, you can avoid any surprises and make informed decisions about your new home purchase.
