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For most people, the second-largest expense of homeownership after the mortgage is property taxes. They vary from place to place as local governments set the property tax rates.

In some places, like Richland Parish, Louisiana, median property taxes are barely noticeable at $214. Go farther north to Nassau County in New York where median property taxes are astonishingly higher, at more than $10,000.

Sky-high property taxes can make homes unaffordable for retired folks living on fixed incomes as well as people who lose jobs, go through divorces or take a blow to their income for some other reason. They can also influence the housing market, making it tougher for entry-level buyers to afford neighborhoods with higher property taxes.

Here we’ll cover the basics of property taxes, including how to pay them, what happens if you can’t afford them and who’s eligible for exemption.

Why property taxes exist

Although paying property taxes might sting, you can comfort yourself in the fact that they go to fund important local services.

They’re a major source of revenue for local governments, accounting for 72 percent of local tax collections across the country in 2015, according to the Tax Foundation. The taxes collected are used for things like emergency services, schools, libraries, police departments and road maintenance..

How property taxes are determined

Depending on your jurisdiction, your property tax is typically calculated as an annual percentage of  either the fair market value or the assessed value of your property.

The difference between the assessed value and the fair market value is that, in the former, an assessor determines the value of the property solely for the purpose of collecting taxes. The fair market value is essentially the selling price of the home and land based on what sellers and buyers agree to for similar properties in your area.

If a homeowner thinks their property is overvalued, they can dispute the assessment, says Adam Wogsland, a real estate attorney at SW&L PC in Fargo, North Dakota.

“You have the right to appeal. In Fargo, you can call up and dispute the appraised value of your home. They don’t usually change it based on a phone call, but you can try,” Wogsland says.

Ways to pay property taxes

Depending on where you live, your property tax bill could come in twice a year or even more. For example, in New York, some residents get quarterly property tax bills and others only get them semiannually; the frequency depends on the assessed property value.

Some homeowners put money toward their property taxes every month via their mortgage payment. Although the extra money is tacked onto the mortgage payment, which is usually set up by the lender when you buy your house, it’s a separate bill. The lender then puts the tax money into an escrow account until it’s time to pay the taxes.

If you’re a homeowner and aren’t sure if you’ve been paying property taxes to your lender, ask your lender and get the information in writing. If your property taxes are in escrow, your lender should send you a form 1098 each year.

If you don’t have an escrow account set up with your lender, most counties will take your property tax payment via mail, phone or online. Check with your local tax collector to find out how and where you can make your payment.

Deducting property tax under the new tax code

Property taxes can be deducted from your income for federal taxes if you itemize your deductions. However, the tax code has changed per the Tax Cuts and Jobs Act of 2017, or TCJA, so folks who itemized in the past might not get the same benefit for 2018 and beyond.

Taxpayers who itemize their deductions do so because they stand to get more money back than they would if they just took a standard deduction. They use a Schedule A form to show how much money they spent on each line item. These items include medical expenses, gifts to charity and state and local tax, or SALT, deductions.

An important change, which will impact some taxpayers, is the new $10,000 cap on SALT deductions starting in the 2018 tax year. SALT deductions include property tax as well as state income and sales taxes. Before the TCJA, there was no cap on SALT taxes.  According to a report by the Tax Policy Center, about 9 percent of households will be negatively affected by the change. These are mostly high-earning homeowners who live in high-tax states like New York and California.

If taxpayers don’t itemize their deductions they can take the standard deduction, which almost doubled this year to $12,000 (from $6,350) for individuals and $24,000 for married couples filing jointly.

Property tax exemptions

There are several types of property tax exemptions. Some states like Texas and Florida, for example, offer homestead exemption. This tax break allows homeowners to exempt a portion of their property taxes from their primary residence as long as they’re living in the home full-time. This exemption doesn’t apply to vacation homes or rental property.

There are also exemptions offered to the blind, the elderly, veterans and people who are facing hardships. The eligibility requirements and the amount of the exemption depends on where you live.

In some places, homeowners can get reductions on property taxes for several reasons, including installing renewable energy systems and buying older homes and rehabbing them.

Because these programs vary by jurisdiction, to find out if you’re eligible for a reduction or an exemption, contact your local tax collector.

What happens if you can’t pay your property taxes

Homeowners who can’t afford their property taxes should immediately contact their lender to discuss the situation, says Bill Heyman, a real estate attorney at Heyman Law Firm in Maryland.

Some lenders have programs that can help homeowners pay their taxes over time. However, ignoring your tax bill can result in a lien on your property, fees piling up and possible foreclosure.

Other options for folks who can’t afford their taxes include borrowing money from friends or relatives or tapping their home equity. Another possible solution is a reverse mortgage, where the bank makes monthly payments to you against the value you have in the home.

“If they have equity in their house but are unable to pay their taxes they should consider refinancing and using that money to pay their taxes. Although, this is not a long-term solution,” Heyman says. “If their situation is bad enough, they should consult with a bankruptcy attorney.”

It’s better to sell the house than to lose it in foreclosure. So if the taxes are unaffordable, talk to a real estate agent. Even if there’s a lien already on your house due to unpaid taxes an agent can help you work out a deal so the new owner pays the taxes, perhaps in exchange for a lower sale price.

For folks who inherited a house with hefty property taxes, Heyman points out that some places offer programs to assist people in this situation who can’t afford their taxes.

When in doubt, talk to a professional — either an accountant, an attorney or a counselor, who can guide you through the often confusing world of taxes.

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