What Potential Homeowners Should Know About Property Taxes

Part of the American Dream involves owning a home. However, apart from the costs of buying property, the government has instituted paying taxes on the property. The debts on property taxes are higher than any other type of debt. During the 1900s, property tax was the greatest source of income for the federal government. Today, income and sales tax also contribute to the state coffers.

Identification
Property tax is levied on real estate including land and improvements on the land. State laws determine the type of property tax levied on a property along with the tax rate. When the owner of a property is charged a property tax, the owner owes a certain percentage of the assessed value of the property. Many states have provisions to allow taxpayers who believe the assessed value of their properties is too high to apply for a review.

Function
Property taxes are the leading source of income for local governments. A portion of the tax may go to the county, state and city. The money helps pay for libraries, schools, fire and police protection among other services. Certain tax assessments are used to pay for specific projects.

Types
Tax rates are determined by the state. Some states levy a higher income or sales tax and lower property tax while others do the opposite. The tax rate can be based on the assessed value of the property or its actual sales price. Other states offer special programs for senior citizens to have their property tax rates frozen. Such programs assist people on fixed income from feeling the financial impact of increasing property values.

Warning
Individuals who fail to pay property taxes risk losing their properties altogether. However small the amount owed, the owner can lose the property after a certain time. The laws on repossession vary with each state. Some states are lien states while others are deed states. Property taxes in lien states are sold to investors who can pay the taxes. The owners will have to pay the investor in a specific timeframe. The payment will include the tax amount owed plus interest. If they fail to pay this amount, they risk losing their property to the investor. In deed states, the land where the property stands is sold to repay the taxes.

Timeframe
The billing of property taxes is done annually. States determine the due date for the taxes as well as their rates. Some states, bill property taxes in the rears. This means owners pay taxes owed in the previous year. Other states bill property taxes on the coming year. Each state also determines the period for foreclosing on property because of delinquent taxes.

When buying a home, it is important to consider the cost of property taxes. Municipalities tax and own property before the completion of the ownership process. To maintain ownership of a property, buyers have to pay property taxes. Entrepreneurs also have to pay property taxes for the buildings they own. Those buying property for the first time should consult state agencies and find out what property tax is and the penalties for not making payments.