Understanding Property Taxes: A Helpful Guide for Homeowners

Property taxes may seem like just another bill, but they play a crucial role in funding communities and necessary services.

Across the United States, property taxes help fund important services at the state and local levels, making them a vital source of revenue for these jurisdictions. Because property tax rates vary greatly among states and localities, they can play a major role in where people choose to live. Most of us are familiar with residential property taxes on land and structures, known as real property taxes and the focus of this article.

Read on to explore the basics of property taxes as we answer five commonly asked questions.

1. Why are property taxes imposed?
   Property taxes are levied to collect revenue that the state can use for a variety of essential functions. Local governments often utilize revenue from property taxes to fund important community services and resources, such as fire departments, police departments, and libraries. Funds from collected property taxes might also be used to improve infrastructure and support public school systems.

2. What is real property tax and what does it include?
   Real property tax is a specific tax levied on immovable property, which includes residential and commercial land, and any structures built on it. In contrast, property tax is a broader term that can encompass various types of taxes on both real property and tangible personal property, such as vehicles, boats, and equipment. Real property tax excludes these personal assets, focusing solely on land and buildings.

3. How are these taxes calculated?
   Real property tax calculations vary by state and county. They are essentially determined by multiplying the property’s assessed value by the applicable property tax rate. The determination of the property’s assessed value typically comes from an appraisal performed by the local government. The assessed value generally differs from the appraised value, which represents the property’s market value (resale value) rather than its taxable value.

4. What factors can influence the amount of property taxes paid?
   Several things can affect property tax payments, including:

• • Location: Property taxes vary significantly based on the city or county. Urban areas typically have higher taxes than rural areas due to the greater demand for public services.
  • Property improvements: Home improvements or additions can increase the property’s assessed value, leading to higher property taxes.
  • Exemptions and deductions: Various exemptions, such as homestead exemptions for primary residences, can reduce the tax burden for specific populations.
  • Assessment frequency: How often the property is reassessed can affect the tax bills. Some jurisdictions reassess properties annually, while others do so every few years.

5. What are property tax credits and exemptions?
   In Maryland, there are several property tax credits and exemptions available designed to ease the financial burden on homeowners, especially those with lower incomes or who meet specific qualifications. They include:

• • Homeowners’ Property Tax Credit: This program limits the amount of property taxes a homeowner must pay based on their income. Eligible homeowners can apply for this credit if their property tax bill exceeds a certain percentage of their gross household income.
  • Homestead Tax Credit: This credit limits the annual increase in taxable assessments for a homeowner’s primary residence. It is automatically applied once the homeowner files a one-time application, which remains effective as long as the homeowner resides on the property​​.
  • ‍Other exemptions: Maryland also offers exemptions for senior citizens, disabled individuals, veterans, and other specific groups. These exemptions can significantly reduce property tax liabilities, providing additional financial relief to those who qualify.

Property taxes are an integral part of real estate proprietorship. By understanding how they are calculated and what factors influence them, you can ensure that you are fully prepared for the financial responsibilities that come with owning real estate.

Being informed about property taxes can save you money and make your home-buying experience much smoother. If you have questions or need more information, the professionals at Certified Title are here to help. Please contact our experienced team today.

About Certified Title Corporation: Since 1994, attorney-owned Certified Title Corporation has been furnishing residential and commercial real estate stakeholders across the nation with robust title insurance, settlement, and escrow services. Renowned for industry-leading reliability and an exemplary level of service and quality, the Maryland-based company helps clients from all walks of life achieve their asset goals. To learn more, call (888)486-5511 or visit https://www.certifiedtitlecorp.com/.