Paying Too Much in Property Taxes?

More than half of homeowners pay too much because their property has been wrongly assessed.

Property-tax increases are based largely on rising home values, not the increase of taxes by local governments.  Different formulas are used to figure property taxes, but it all depends on a home's assessed value.  Some jurisdictions use a home's actual market value, while others use a percentage of a property's worth.

The National Taxpayers Union estimates that as much as 60% of taxable property in the United States is overassessed.  But only half of homeowners protest their assessments.  This means many may be paying more in property taxes than necessary.  Many taxpayers don't fight it because they don't understand the process, or because they can't stomach doing the research and providing evidence to prove the assessment is wrong.

If you really don't have the time or desire, hire a property-tax consultant or attorney to do the work.  Many of these consultants charge on a contingency basis, meaning they'll take a percentage of the tax savings if they succeed in lowering your assessment.

Mistakes happen more often than you think.  Many assessors don't even come onto your property to inspect it.  They simply compare a written description of your home with that of similar properties in your neighborhood.  Appraisers also may use historical information that's wrong.  A home's square footage, for example, might have been incorrectly calculated on original construction documents.

Here are additional tips to help you in the appeals process:

Vacation Homes Can Raise Your Tax Load

People who spend a lot of time relaxing in one state while calling another home can trigger state income tax in both. A common way to go wrong is to hold on to a condo and social connections after moving away to a tax haven such as Florida or Nevada.

No single thing proves a person lives in one state or another, so it is important to take several steps to guard against being doubly taxed. Keeping good records and making sure to register properly for important activities such as voting and driving is a start.

Retirees who have migrated from high-tax Northeastern states such as New York, New Jersey and Massachusetts to Florida are among folks most affected. Many start out with the best of intentions, but the urge to be near family can prompt them to spend a bigger chunk of the year than intended in their old haunts.

It is best to err on the side of caution when documenting the move to a different state. The first thing is to change all legal documents to reflect it.  Passports, voter registrations, automobile registrations and driver's licenses should show the new state as residence, said Mr. DiQuollo. Federal income-tax returns should be filed from the resident state and mailed to a corresponding regional tax office. Financial reports should be addressed to the resident state.

Consider Income Taxes When Relocating

As many states close their budget gaps by raising taxes, an important factor in the calculus of where to live is shifting, particularly for retirees or people with an option of choosing between neighboring states.  In the past 3 years, 26 states have raised taxes significantly in one way or another.

Of course, most people don't base where they live on taxes alone.  Family, work and climate are the most important factors.  Most of the states' increases followed cuts during the 1990s, when state coffers were flush with cash from a booming economy.  But every year approximately one in seven Americans changes residences, according to the U.S. Census Bureau, and tax advisers and real-estate agents agree that taxes are becoming more of a consideration.

Figuring out the best state to live in for tax reasons can be even more complicated than doing your own tax return.  States, cities and other municipalities have a wide range of taxes, fees and other levies that make comparisons tricky, which makes your personal situation all the more important when weighing the advantages of one state over another.  How vulnerable are you to a high income tax?  Is avoiding an estate tax an important concern?  How much will you be affected by high property taxes?

We'd love to hear your comments on this subject if you are considering a move and taxes are (as they should be) on your mind.  Use the "comment" link below to leave us your thoughts.

Property Tax Assessments on the Rise

Falling home prices and rising property-tax assessments are fueling a grass-roots tax rebellion.  Homeowners are lodging record numbers of appeals, fighting against rising assessments that are, in many cases, pushing up annual tax payments significantly.

The Problem: Tax assessments didn't keep pace with soaring property values in recent years. Now, assessments are catching up at the worst possible time, just as property prices soften. In theory, municipalities are supposed to roll back tax rates to offset rising property assessments. But many don't do it regularly, or do so to a lesser degree than they should.

A surprising number of homeowners don't realize they can fight the assessment. "It's the best-kept secret," says Marc Vorchheimer, a financial planner in Nanuet, N.Y., who is gearing up to help several clients appeal their assessments.

Assessors and appraisers say they recognize that mistakes are certain to occur.  After all, values are generally based on mass assessments of tens or hundreds of thousands of properties in a short period.

Facts to help make your case include a home's square footage, the number of rooms and the size of the garage, basement and acreage in cases where the assessed value is based on flawed dimensions.  Data on comparable sales in the area can help bring your value down, if your assessment is higher than the selling prices of nearby homes.

Have you been hit with a tax assessment that seemed unreasonable?  Did you take any action or do anything about it, or just pay it?  Tell us about your experience with the tax man.  Click the COMMENT link below and let us hear from you.

Delinquent Borrowers May Get a Tax Surprise

For homeowners seriously delinquent on their mortgages and hoping for some relief, the IRS has bad news: If your lender agrees to modify your loan and forgive any part of your debt, you could owe federal income taxes on the amount forgiven.

When personal debts are canceled by a creditor, the amount forgiven is treated as ordinary income under the Internal Revenue Code unless the taxpayer is insolvent or bankrupt. And the lender is required by law to report the amount canceled to the IRS.

This is especially bad news for the growing numbers of credit-impaired sub-prime borrowers who find themselves "upside down" in the current market: They owe more on their mortgages than the value of their houses, thanks to noxious combinations of zero down payments, declining property values and hefty payment increases they can't afford.

Proposed new, bipartisan legislation on Capitol Hill could soften some of the effects on financially stressed homeowners, however. The Mortgage Cancellation Tax Relief Act of 2007 (HR 1876) would amend the tax code to exempt debt forgiveness on principal home mortgages from being treated as income.  The legislation potentially could assist many other homeowners in financial trouble who negotiate pre-foreclosure "short sales" or deeds in lieu of foreclosure, or whose foreclosure proceeds are insufficient to pay off their mortgage debt.

We'd love to hear any comments you'd like to leave on this proposed new legislation.  Just click the Comment link below.