What are Property Taxes Basics for US taxpayers?

By Expat News

Real estate or property tax is one of the categories of taxes assessed by the government. We might not like taxes, and might not always agree with how they are spent, but we understand that they are an inherent part of our system of government. Without taxes, our country will grind to a halt and descend into chaos.

Property taxes Basics and US taxpayers

Gallup conducted a poll to determine which of all the myriad of taxes levied, is the most hated. Respondents could choose one out of a group of five taxes that are generally deemed as being unpopular. It does not come as much of a surprise to hear that property taxes are detested above all other forms of tax. In fact, property taxes won by a long shot and received a whole 42% of the total votes.

There are a few reasons to explain why this tax in particular is hated so much by the average American taxpayer. Property tax can easily be more than an individual’s state and federal income tax. The recent volatility in the international market has also had its effect on house prices. The result is that these prices have undergone a whole range of ups and downs, without warning. This volatility influenced property taxes and made the calculations all the more difficult to do.

Another factor that contributes to this general feeling against property taxes is the seeming randomness of regulations regarding property taxes. There is no congruence between two neighboring counties, not to mention even to different states. This apparent randomness did not boost the popularity of property taxes.

A recent study by the Urban-Brookings Tax Policy Center brought the following to light:

State Mean Property Taxes for 2012 Tax as % Home Value

New Jersey             $7,318               2.32%

New Hampshire     $5,230              2.18%

Connecticut             $5,200             1.88%

New York                $5,040             1.68%

Illinois                      $4,469              2.28%

Vermont                  $4,328              1.62%

Rhode Island          $3,820              1.67%

Massachusetts       $3,805              1.19%

Wisconsin               $3,530              2.07%

Alaska                    $3,290               1.28%


From the table, we can see that the New England states generally pay property taxes above the national average. This area is already highly developed, which means land is becoming scarcer. Land is a finite resource and therefore property value and taxes will continuously be pushed up, with the possibility of a-linear jumps in the curve as the resource becomes scarcer.

To try and explain real estate taxes by only looking at the availability of land, would be a mistake. Various factors, like location, infrastructure, availability of land, maintenance of existing infrastructure, etc. contributes to the price of a house.

Therefore, a house that is physically the same might cost much more or much less, depending on where it is situated. Clearly a house in a popular suburb will be more expensive than that exact same house built in a farming, miles from many basic essential services. In turn, this would influence the amount that is paid on real estate taxes taxes.

In the order of a third of the county’s revenue is generally generated by property tax. This makes it very important part of the local, and national, budget. If property taxes and obviously other taxes are not paid, the county will not be able to supply basic services, or maintain current infrastructure. The schools, police and fire departments, for example, would be hamstrung by underfunding.

Also from the table we see, that once again, there seems to be no correlation between states when it comes real estate taxes paid as a percentage of the value of the house.

All these variations and apparent inconsistencies mean that it is difficult to budget accurately for your yearly property taxes.

How American taxpayers can save on real estate taxes?

There is, however, good news. There are various simple ways to save on property tax.

The easiest, and quite often overlooked, way of saving on your property taxes is to remember property taxes can be a deduction. The IRS does not want you to pay tax on taxes. That would be double taxation. Therefore, always remember that when you are in the process of figuring out how much you should pay on income tax, deduct real estate taxes paid from your income.

It is important that you only claim what was actually paid. Remember that the amount that you put in escrow for real estate taxes, which is a common practice, and the actual amount paid can vary. Confirm this with your bank and your loan provider.

US taxpayers can also ask for the property’s value to be reassessed. If, for some or other reason, you are convinced that your property is overvalued then doing this will save you money. Even though property value is not the only determinant when calculating real estate taxes, there is a direct correlation between the two.

US taxpayers should do research on county’s property tax laws in order to understand clearly how they determine the value of the property. It is quite common to find that mistakes have been made during previous assessments. Another indicator is the selling prices actually fetched on the market for similar houses. If this is lower than the actual assessments, it might be a good idea to have your home re-assessed.


We at Artio Partners believe that the tax season is not defined by April 15 or June 15 deadline. Tax planning is the essential part of any tax preparation process. Planning for real estate taxes or any other category of taxes is the important part of it. If you need help, please contact international tax experts at Artio Partners.