Demystifying Property Taxes: How Do They Work and Can I Dispute Mine?
Property taxes. Everyone wants to live in a well maintained area with lots of amenities, but no one wants to think about how they are paid for. I know the feeling! So I thought I would cover:
Brief History of Property Taxes
What Do Property Taxes Pay For?
Reasons for Property Tax Increases
How Homes are Assessed
When Are My Property Taxes Due?
What is an Escrow Readjustment?
Can Anything Be Done if You Don’t Agree with Your Assessment?
When it May Be Time To Enlist an Attorney
Brief History of Property Taxes in Ohio:
The real property tax is Ohio’s oldest tax. It has been a tax based on the value of land or real property (an ad valorem tax) since 1825 and it has been required to be taxed by uniform rule throughout the state since it was added to the constitution in 1851. A full reappraisal is done in each county (on a rolling schedule) every six years and a more simple value update is done three years after the reappraisal to make sure there is the least amount of sticker shock possible. This is generally done when there is a sale of the home and reflects the new price, as having an accurate market value of the property is required by law and data from recent sales are the best indication of market value.
All of the money collected by the state for real property tax is sent to the local authority or school district for use, including credits like homestead and rollbacks. Both the homestead exemption (which shields up to $25,000 of the homestead from taxation for owner occupants over 65 years old, 59 if the surviving spouse of a deceased taxpayer who previously received the exemption or someone permanently and totally disabled), and a 10% reduction or “rollback” were instituted in 1971 and a further 2.5% rollback was added in 1979 on all residential property. There used to be income requirements to receive the homestead exemption, but those were eliminated in 2007.
In 1976, the current property tax method was established. According to the Ohio Department of Taxation, if property values increase, the tax rates decrease in order to prevent significant changes in a property owner’s tax burden. And though I will show an example below of how that is practiced, I think anyone who just received a 2023 tax bill would beg to differ!
What Do Property Taxes Pay For?
What property taxes pay for depends widely on where you live, whether in a city or a township, but generally, they pay for things that benefit the community, like
Children's Services
County General Fund
Public and Vocational Schools
Parks
Libraries
Zoos
Senior Services
Police
Fire and EMT Services.
In townships, where there is no local income tax, you will see a higher percentage go to the local administration than in cities and villages that do have that additional tax. Below is an example of a property in Hamilton County in the city of Blue Ash that shows where every dollar of their property tax gets distributed:
Reasons for Property Tax Increases
The most obvious reason for tax increases is a rise in values, which we have seen dramatically in the early 2020s. This can be due to renovations, general market value increases or new amenities in the area. The other reason for increases could be new or increased local levies. These can be for schools, zoos, parks, libraries, services for low-income families or people with disabilities, etc. These are always voted on by the majority of residents in local elections.
As I mentioned above, in Ohio, the tax is based on the assessed value of the land and improvements (usually buildings/homes). The taxable value is 35% of that market value when we are talking about residential property. Rates are levied locally and are adjusted based on the needs of the jurisdiction as approved by voters. The statewide average effective tax rate in Ohio according to smartasset.com is 1.57%, which ranks 13th in the nation. In our area, though they vary widely based on your tax district (county, school district, municipality, township, and special service district), the median effective tax rates are as follows:
Butler County: 1.53%
Clermont County: 1.5%
Hamilton County: 1.81%
Warren County: 1.59%
How Homes are Assessed
Every six years the county auditors complete an appraisal of each property and determine the Market Value. There are separate values applied to the land and the improvements. If there was a recent sale, then that data is used, because the most accurate value is the price that a buyer was willing to pay and a seller was willing to sell. Sounds simple, right? This is where things get confusing.
The value is then multiplied by 35% in order to determine the Assessed Value. Next the Full Tax Rate is applied, then there is a reduction factor applied based on the needs of the county as voted upon by its residents. The number you are left with is the Effective Tax Rate. The county will then apply applicable credits (non-business, owner occupancy, homestead, etc.) and THAT number will be split in half and you will be responsible for that amount in January, and the same amount again in June.
The reduction factor is the number that changes when home values change. It goes up when values go down and it goes down when they rise. In theory, if the value of your home goes up 30%, your taxes should NOT go up at the same rate.
In the example home I’ve chosen above, here is how the taxes were broken down:
2022
Market Value: $155,400
Assessed Value: $54,390
Half Year Tax Bill: $1439.59
2023
Market Value: $352,500
Assessed Value: $123,370
Half Year Tax Bill: $2626.24
You’ll notice that though the Market Value of the home increased 127%, the Half Year Tax Bill only increased 82%. This particular home was a flip and the new value was based on the last sale price. While that is definitely less and the letter of the law was maintained, the spirit seems to have been ignored, as that is still a huge increase and the counties in Southwest Ohio will likely have quite the windfall from property taxes this year and it will be interesting to see how that will reflect the county’s budget and what they will do going forward with tax rates.
The auditor is responsible for keeping property values accurate to AVOID these large increases, and even though you live in your home and want the value to remain low to keep your taxes low, it will eventually catch up to you and could result in quite the shock.
When Are My Property Taxes Due?
While the exact dates can vary by county, in general, real property taxes are due in January and June of each year. If you have never seen a bill, you should verify with your mortgage lender that they are paying your taxes for you out of your escrow account (which is very common on homes purchased with less than 20% equity and can be requested on homes that have 20% or more). You can also verify both the address the county is sending your tax bill to and the amounts due on the auditor’s website.
The taxes are due in arrears, which means that the taxes due in January of 2024 will be for the first half of 2023 and those due in June will be for the second half of 2023. This is why there may be a large credit from a seller to a buyer in a home sale depending on what time of year it is. And why you and your agent and/or lender need to double check that the amount is calculated correctly if there has been a large change in the value of the home or if it is a new build.
What is an Escrow Readjustment?
When your property tax or homeowners insurance bill comes in higher than expected and you escrow the costs of those things, your bank will go ahead and pay them for you, but they are going to need the money to be repaid. There is a minimum amount allowed in your escrow account by law and they have to comply, but they SHOULD give you options. Generally, they will ask you if you want to make a lump sum payment for the difference or if you want to break it down into smaller payments over the course of the year. This is actually the only way your mortgage payment can ever go up, assuming you pay it on time every month. Keep in mind that they will need to increase by not only the amount it was short but also recalculate the new monthly payment based on the higher bills going forward.
Can Anything Be Done if You Don’t Agree with Your Assessment?
ABSOLUTELY. Look, I’m going to be real honest with you, as I always am. If you purchased your home in the last six years and the new market value is the sales price or close to it, the county is not going to entertain a contestation unless something dramatic happened to lower the value of the home (for example, the tornado in Goshen).
But, if the homes around you have been selling for way more than your previous valuation and the county appraised your home at that level, but you haven’t renovated your home in the last decade, then you may have a point!
So what are your options and what’s the process like? The first thing you will need to do is get a accurate market value for your home. You can do this in one of two ways: hire an appraiser (should be less than $500) or you can generally use a broker pricing opinion. If you are a client of mine, or want to be, fill out this form and I’ll get you taken care of.
Please note that the submission deadline for the board of revision for most counties is Mar 31, 2024 for the 2023 tax revision, so if you think you want to pursue this, let’s get on it.
Here are links to the forms required in the Southwest Ohio Counties that either had reappraisal or revision years in 2023:
Brown and Warren Counties will have updates in 2024 and Adams County reappraised in 2022 and will have a revision year in 2025.
After your form is submitted, the Board of Revision will meet in the second quarter of the year and review the submissions. If the request is clear, and likely the amount isn’t a large difference, they may rubber stamp your application at that meeting and make the adjustment. If there is a large discrepancy or the Board doesn’t see the obvious issue, they will request a hearing. From here, things get tricky.
When it May Be Time To Enlist an Attorney
I’m sure you’ve heard the famous Abraham Lincoln quote “The man who represents himself has a fool for a client.” While it doesn’t always apply to a Board of Revision case, it can. The Board tends to take someone who enlisted a CPA or attorney in their case more seriously and the success rate can be improved greatly. There is obviously a cost here, so the amount you are protesting would need to justify the attorney fees. For a simple filing, it should be under $1000, but if you go to a hearing, that will increase.
If you are planning to stay in your home long term and the discrepancy is a substantial amount, it could be well worth it to have representation. Note that a real estate agent can not represent you at one of these hearings, but if we meet and I run a market analysis on your home and think you need an attorney, I can certainly refer you to a great firm that specializes in real estate law.
Wrapping Up
Taxes are no fun. No one wants to think about them or pay them, but they influence the area we live in and areas with higher taxes (for example, some of the top school districts) can increase the value of your home because they are in more desirable neighborhoods. If you properly plan ahead, you can budget for these taxes and put them on autopilot. And if you work with one of Cincinnati’s top real estate companies, like TREO, we will make sure you have all the information you need to stay ahead of the game.
I can’t wait to meet you!
Always feel free to email me at alysa@myhomeincincy.com or give me a call or text on 917-657-2458!
-Alysa M. Ortega
