How fast do property taxes increase?

How Fast Do Property Taxes💡 Definition:Property taxes are mandatory fees on real estate, funding local services like schools and infrastructure. Increase?

Property taxes are a significant expense for homeowners, and understanding how they increase over time is crucial for effective financial planning💡 Definition:A strategic approach to managing finances, ensuring a secure future and achieving financial goals.. While a general annual growth rate of 2%–5% is often cited, the reality is far more complex and varies greatly by location. In this article, we'll explore the factors driving property tax increases, provide real-world examples, and offer guidance on what homeowners can expect.

Understanding Property Tax Growth

Recent Trends in Property Tax Increases

Property taxes in the United States have seen substantial growth in recent years, primarily driven by rising home values. Between 2023 and 2024, the median property tax payment increased by 5.5% annually, reaching $3,018. Over a longer period from 2021 to 2023, taxes rose by an average of 10.4%, translating to roughly $2,969 annually or about $247 more per month.

• Key driver: Home price appreciation💡 Definition:The increase in an asset's value over time, whether it's real estate, stocks, or other investments. has been the main factor, with median listing prices climbing 16.2% from 2021 to 2023.
• Double impact: In addition to rising home values, tax rates themselves are increasing in many areas, 💡 Definition:Interest calculated on both principal and accumulated interest, creating exponential growth over time.compounding💡 Definition:Compounding is earning interest on interest, maximizing your investment growth over time. the effect on homeowners.

State-by-State Variation

Property tax increases are not uniform across the country, with significant variation from state to state. For instance:

• Colorado: Experienced a 10.6% annual increase from 2023 to 2024, despite having a low tax rate of 0.52%.
• Georgia and Florida: Saw increases of 10.3% and 9.5% respectively, driven by sharp home price growth of 65% in Georgia and 73% in Florida since 2019.

Here's a summary table of notable increases:

Effective Tax Rate💡 Definition:Your actual tax rate—total taxes paid divided by total income. Lower than marginal rate because of brackets and deductions. Dynamics

Despite the rise in property tax bills, the effective tax rate—taxes paid as a percentage💡 Definition:A fraction or ratio expressed as a number out of 100, denoted by the % symbol. of home value—has declined over the past decade. It fell from 1.147% in 2012 to 0.909% in 2023. This trend mainly benefits long-term homeowners due to tax assessments lagging behind 💡 Definition:Fair value is an asset's true worth in the market, crucial for informed investment decisions.market value💡 Definition:The total value of a company's outstanding shares, calculated by multiplying share price by the number of shares. increases, while newer homeowners face assessments reflecting current market values.

Real-World Scenarios

Consider a homeowner in North Carolina, where the tax rate is 0.79%, relatively low by national standards. Despite this, the median tax payment reached $1,750 in 2024 because home values increased by 13.9% annually. This example illustrates how low tax rates do not necessarily equate to low tax payments if home values are rising quickly.

Common Mistakes and Considerations

• Ignoring Local Trends: Homeowners often fail to account for local home price trends that could impact their tax bills.
• Underestimating Assessments: Some assume their taxes will💡 Definition:A will is a legal document that specifies how your assets should be distributed after your death, ensuring your wishes are honored. only rise with local tax rates, not realizing that assessments adjust periodically to reflect market values.
• Overlooking Exemptions: Programs like homestead exemptions or local caps (e.g., Proposition 13 in California) can limit tax increases, but homeowners need to apply for or maintain eligibility.

Bottom Line

Property tax increases are influenced by a combination of local tax rates, home price appreciation, and assessment frequency. While national trends provide a broad picture, your experience will depend on local factors and policy measures. For financial planning, anticipate property tax increases to align closely with local home price trends rather than declining effective rates. Understanding these dynamics will better prepare you for future tax bills and ensure your budget💡 Definition:A spending plan that tracks income and expenses to ensure you're living within your means and working toward financial goals. accurately reflects potential changes.

By proactively modeling your local assumptions and considering possible exemptions, you can mitigate the impact of rising property taxes and maintain financial stability.