Log InJoin 

What Are Homeowner Taxes?

What Are Homeowner Taxes?

Taxes are given in life regardless of what form they take. Some taxes you may be familiar with are income taxes which get pulled out of your paycheck and sales tax which you pay when you buy that new TV or computer. One form of taxes that only homeowners face is called property tax which is sometimes referred to as a homeowner tax. The homeowner tax is determined by the state and while accurate in most cases still has some subjectivity and can be challenged if you feel you are paying too much property tax.

Homeowners taxes are usually included as part of the escrow payment when a property owner makes their monthly mortgage payment. The escrow payment not only includes property taxes but also private mortgage insurance and homeowners insurance. Depending on where you live in the country the amount you pay in homeowners taxes will be determined by a number of factors such as the price of surrounding residences as well as the affluence of the county the home resides. Homeowners taxes can range anywhere from a few hundred dollars for moderately developed land in a rural county to thousands of dollars for an expensive home in an affluent suburb.

The reason why this is something only homeowners pay is because a mortgage payment includes three separate categories which are principal, interest and escrow. At the time of the mortgage documentation signing, which can be quite extensive, the paperwork will outline exactly what the payment will be on a monthly basis and what that payment will include. One part of the payment as denoted in escrow will be applied to property taxes. For the most part the estimation of escrow is accurate although after the first 12 month cycle sometimes it will be adjusted slightly up or down dependent on the insurances and taxes. The nice thing is that since all of these payments are rolled into one monthly mortgage check you don't have to make separate payments to the mortgage holder, your homeowners insurance company or the County tax assessor's office.

It is common for mortgages to be sold from company to company at which point all information should be transferred without issue and payments will be made for the same amount but to a new organization. It's smart however to give the new company a call and verify the amounts and dates of various payments as it is ultimately the homeowners responsibility. You can also call the County tax assessor to verify that taxes have been paid and the property is currently up to date. If something should happen it is possible for the property owner to owe taxes at which point a lien could be placed which can lead to other legal and financial issues.

Homeowners taxes, also known as property taxes, are an important process of the home buying experience but only a small part of the overall cost of owning a home. Not only does the existing principal and interest get paid but additional payments for insurances are also included as part of the escrow payment. Keeping track of what is getting paid and to whom will ensure no liens get placed against the property. The nice thing is home related taxes are deductible and provide a tax benefit. The IRS provides additional information in Topic 503 and Publication 551 which relate the home ownership and property taxes. Be sure to thoroughly understand all the benefits and responsibilities that come with home ownership of which homeowner taxes are small part.

Image by: Photo Dean