You just bought a home in the cutest section of town. Your kids love the new neighborhood, and there is a playground right across the street. A couple of fantastic schools are within walking distance. Overall, your town is like Mayberry, and it and has everything you need. Guess who pays for all of those wonderful amenities? You do with your property taxes. But how many times have you looked at your bill and thought, “I am paying too much! What do property taxes pay for anyway? “That’s a great question. Like most people, you’re paying property taxes but don’t know why other than that’s the law. You pay the bill, but don’t know where that money really goes.
Most, if not all, of your property tax money stays within your community. According to the Tax Foundation, property taxes make up more than 31% of the US state and local tax collection. More than any other source of revenue in the US. Your tax liability is based on which county you live in and the value of your home. But where do property taxes go? Why you should consider paying property taxes? They go to the county, which distributes them to the predetermined services. It’s not regulated by the federal government. When you receive your tax bill, it will be itemized; consequently, you will see exactly which amenities you are paying for. We all want to know where our hard earned tax dollars go; let’s get into the good stuff.
So, What Do Property Taxes Pay for?
If it aids the community in any way, your property taxes typically pay for it. How the money is allocated is up to each governing body. One town may use it for potholes while another may put it into snow removal or its library.
1. Public Schools
This is where the lion’s share of your property tax goes. Especially if you are in an area with a large student population or a city where providing premium education is on the forefront. Even though public schools get funding from federal and state governments, a majority of their funding comes from paying property taxes .Areas with higher-rated schools usually have higher housing costs, which in turn creates higher property taxes. People aren’t clamoring to move to neighborhoods with mediocre schools. High home prices = more property taxes = more money for local schools. The municipality decides what percentage goes towards each of the community services.
For example: If you bought a home in Garfield, NJ, almost 49% of your property taxes go to schools. Conversely, if you live in Avalon, NJ, only 7.42% goes toward schools. https://www.app.com/story/news/investigations/data/analysis/2018/03/19/nj-property-taxes-schools/432318002/
The top public schools are in municipalities with the highest property taxes. If you want your kids to go to the best school in New Jersey, be sure to find out if you can afford the levies. Especially in New Jersey because it has the highest property tax rate in the country.Any talk of property tax reduction often comes with serious resistance from schools and parents. But wait, I don’t have kids. Why should I pay so much into the school system?
That’s a great question and one that is often up for hot debate. On one side, the short and snarky answer is that you don’t want to live in a country full of birdbrains. As you get older, today’s students will be tomorrow’s future; they will be the leaders, inventors, business owners, the future of the world we live in. The better educated they are, the better off we will all be. And who other than the young and healthy will be there to support the old and retired? On the flip side of that is, people without kids are paying the same as those with five kids. Is that fair? Some seniors are downsizing or losing their homes due to property taxes, yet schools in those same districts have world-class state of the art facilities.
Why can’t the private sector pay for that?Could there be a better way? Maybe. What if you only paid for the services you want or might use, like the police or fire department? That is great if everyone chooses to pay for those departments too. But what if you choose to pay for it and your neighbor doesn’t. If there is a fire in your neighbor’s home, the fire department has to let it burn. Now your home is in danger. That system won’t work. What about paying more taxes when your kids are going to school? Or if families with kids paid more than those without? Is it plausible to stop paying so much into schools when you become a senior at a certain age? These questions are always up for dispute.
2. Public Roads and Bridges
You probably don’t even think about it, but every road you drive on and its streetlights, are all maintained by the costs raised from your property taxes. When those deep potholes get fixed, it’s because there is enough money in the coffers to fix them. Are you getting new sidewalks in your neighborhood? The revenue from property taxes is used to fund that too.In places like the Midwest and East Coast, the streets take a beating after freezing, thawing and baking every year. In those states, a higher portion of property taxes will be spent on fixing the roads every year.
3. Parks and Recreational Areas
Do you like jogging in the park? Do your kids play at the neighborhood playground? The maintenance of those parks is paid by your property taxes, as well. Recreational areas are not build it and forget it kind of places; they need constant maintenance and upkeep. Any public land that isn’t owned by the state is reliant on those taxes for preservation.
4. Police, Fire, and Public Safety
So, what do property taxes pay for? Your safety. Kind of important, right? Contrary to popular belief, police salaries aren’t financed by tickets. The revenue from property taxes is used to fund those too. It’s not just the salaries. Your property taxes typically pay for the benefits and pensions of the safety forces, as well. The same goes for police cars and the personnel who support the police like the people who answer the 911 calls. When the police department needs a new station, some of that financing will fall upon you, the taxpayer. Your taxes fund everything that keeps the safety departments running smoothly.
People want to move somewhere safe, which means you need a strong police force, which in turn means higher property values and taxes. It’s an intertwined circle, and you can’t have one without the other. Well-heeled residents expect high-quality services. The higher the quality of service, the more property taxes are needed to fund those services. It’s a symbiotic relationship. When the municipality needs more police, firefighters, and emergency response workers, property taxes often get raised. Sadly, bankrupt cities have fewer services like police and firefighters to take care of the people in the community.
Although libraries aren’t a large portion of your bill, the revenue from property taxes is used to fund them. And everyone wants one in their community. When the median property values drop in a community, the politicians have to scramble to adjust the taxes to receive the same revenue. Many libraries, which receive a feeble amount of money from property taxes, are struggling to stay open.
Street cleaning, snow removal, sewers, and trash collection are all wrapped up in your property taxes. Some municipalities will bill them separately, but your tax dollars still fund them.
7. Government Administration
A small portion of your taxes goes for government administration costs. It covers the salaries and benefits of municipal admin staff and possibly even the government buildings as well. So, what is property tax used for? To keep your community in tip-top shape. But then why do so many people hate paying them? Let’s delve into that hot topic.
Paying Property Taxes: America’s Most Hated Tax
Many good things come from property taxes. But according to Motley Fool, 42% of Americans feel like property taxes are the least fair taxes overall. Partly because your property taxes may go up just because the municipality needs extra funds, whatever those might be. You might not have done anything to improve your property, but your bill keeps getting higher.
Unless homeowners can pay that tax increase, they might have to sell. Another reason for the resentment is that property taxes are regressive and everchanging. Since everyone pays the same tax rate, lower-salaried people are hit harder because they have to fork over the same percentage. And if you don’t pay these taxes, your home could be sold, even if you’ve paid the mortgage. Seniors, who have paid off their homes and may have a fixed income from social security, still have to pay property taxes as they rise. That is why a lot of seniors downsize even if their mortgage is paid off. What about renters? Do they pay property taxes? Let’s find out.
But wait, I’m just renting…
Surely, I don’t need to pay property taxes, right? Well, not so fast. That all depends on your landlord. You are probably paying them and not even knowing it. Most landlords will add the mortgage and taxes into the rent. So, in actuality, you are paying them, just not directly. Most landlords own property to make money, not lose it. If the taxes go up, the rent usually must, regardless of whether the renter can afford that raise. If the renters don’t pay the taxes, then it’s coming out of the landlord’s pocket. And it’s certainly not the best investment property for the owner.Common sense would say that moving to another state could lower your property tax liability. Well, that is true and false. Let’s delve into that.
You’ll Never Guess Which States have the Lowest Property Taxes
Surprisingly, it’s Hawaii at 0.18%. It makes you think, doesn’t it? Now don’t go moving there just yet. You must research its other tax obligations first. Hawaii’s property tax rates may be low, but it is a notoriously expensive state. The median home value is a rather pricey $620,400, which still means you could have a hefty tax bill. https://www.investopedia.com/articles/personal-finance/102015/7-best-states-property-taxes-and-why.asp#1-hawaiiPensions and social security are exempt from state income tax, but the taxes on some income can be as high as 8.25%. You need to delve further into the state and county before you plan to move. All 50 states, including Washington DC, collect property taxes in one way or another.
According to Forbes, property taxes rose an average of 4% in 2018, totaling $304.6 billion. Only four states weren’t included in that raise were New Mexico, Nevada, Pennsylvania, Oklahoma, and Iowa. New Jersey and New Hampshire have the highest property tax rates: 1.89% and 1.86%, respectively. In New Hampshire, almost 65% of the total tax collections of the state was from property taxes. Whereas in Hawaii, it was only 17%. The state relies upon the money from travelers and tourism so it can give its residents a break.
https://taxfoundation.org/state-and-local-property-tax-reliance-2019/If you are thinking about moving to lower your property taxes, keep in mind that the rate isn’t set solely at the state level. School boards, cities, and counties also influence the levies, so one area of a state may be higher than the next. Do your research by checking out the property tax records of a specific home at Propertytaxrecords.org and also by contacting the local county.
The Final Word
Of all the taxes in the United States, property taxes account for roughly one-third of all state and local collections. Your property taxes account for the largest source of state funding. It’s possible that your annual tax bill may be lower than one mortgage payment. However, in some areas, it could be three times your monthly mortgage. Areas with high property taxes often have the best amenities. Everyone wants to move into the most desirable neighborhood. You must consider more than just the affordability of the home; you’ll have to be able to pay the property taxes as well.
Before you buy a home, you should know how these taxes will affect your bottom line. They could make or break the deal. You can go to propertytaxrecords.org to find out the tax bill. Now you know what your property taxes typically pay for and why they are so crucial to the community. If you love the town you live in; there is probably a good reason for that. Your property is more valuable because the county’s infrastructure is well maintained, and the nearby schools are excellent. If you didn’t pay into property taxes, your community would suffer.