How can taxes go up when property values don’t?

Sometimes property tax rates can go up, even if property value does not. The likelihood of rising property tax rates combined with falling or steady home values can vary depending on what state you live in. Some state legislatures have the power to allow a rise in property tax even when home values decline. In many other states, mathematical formulas are used to decide the relationship between property tax rates and home values.

How can property tax rates go up when home values don’t?

Property tax rates can increase because the individual taxing districts need to raise revenue to provide services. Local, voter-approved bonds and override levies may be responsible for rising property tax rates as well. If a district’s budget increases, while the assessed value of all property remains the same, the property tax rate will increase and individual property owners will pay higher taxes.

Sometimes, there is also a lag between an assessment of property value and a rise in property tax. Because revaluation of property value does not have to occur every year, it’s possible a home could lose a lot of value in a very short time, while property tax rates shoot up.

Can business values also affect property tax rates?

If business is bad for a local community, the area’s economy can suffer and affected business property value may go down. However, your property tax rates may still be higher, since taxing districts still need to pay for the same basic services.  Also, the taxing entity may need more money due to inflation, emergencies, and even lawsuits. A recession might also make businesses close, which can undermine an important source of tax revenue.

Can foreclosures affect property tax rates?

Some experts have estimated that a single foreclosed home in a neighborhood can lower neighborhood home values by three percent. Fortunately, many states allow lower estimated property tax rates when home values are falling. Arizona, as one example, has a law which prohibits the Limited Tax Value (the largest property tax allowed) to ever be higher than the market value of land and property.

With the economic downturn of 2008, many people lost significant property value and began using attorneys specializing in tax law to help keep them in their homes. City governments and tax authorities recognize that it benefits no one when lenders foreclose on a home with a below-market property value.

Case Studies: How Property Tax Rates Can Increase Without a Rise in Property Values

Case Study 1: Rising Tax Rates in Declining Property Values

In the state, legislative powers enable property tax rates to increase even when home values decline. The City reveals that despite stagnant or decreasing property values, the local taxing districts needed to generate additional revenue to maintain essential services.

As a result, individual property owners experienced higher property tax rates and had to pay increased taxes.

Case Study 2: Lag in Property Tax Assessment

In State, the assessment of property values may not occur annually, leading to potential disparities between property values and tax rates. This highlights how a sudden drop in home values within a short period could occur while property tax rates simultaneously skyrocket.

This lag in property value assessment contributes to the disconnect between property values and tax rates.

Case Study 3: Business Impact on Property Tax Rates

The economic well-being of a local community can directly impact property tax rates, even if property values are affected. In Town, businesses facing a decline due to a recession resulted in decreased business property values.

However, the local taxing districts still required sufficient funds to sustain essential services. This led to higher property tax rates for residents despite the decreased value of their properties.

Case Study 4: Foreclosures and Neighborhood Home Values

Foreclosed homes within a neighborhood can have a significant impact on property values. An analysis conducted in County estimated that a single foreclosed home could decrease neighborhood home values by up to three percent.

However, certain states, such as Arizona, have laws in place to prevent property tax rates from exceeding the market value of land and property. These laws aim to protect homeowners from being burdened with excessive property taxes.