When buying a home, there are additional costs one must always keep in mind in order not to be surprised by unexpected bills or expenses that they may not be able to afford. Buying a home is a major investment, but a mortgage isn’t the only thing to keep in mind, as various real estate taxes can be a significant expense, so it’s best to know something about them before purchasing a property – especially for the first-time buyer.
Also called “real estate taxes,” the property tax is based on the value of the property you’ve purchased and varies greatly from state to state. According to Wallet Hub, these property taxes can be a small expense of a major burden depending where you’re located. The property tax rate is only about 0.50% in the District of Columbia, meaning annual taxes of about $2,811 based on a median-valued home. By contrast, property taxes are a whopping 2.40% in New Jersey, meaning annual taxes of $7,601 based on a median-valued home.
What does my property tax pay for?
At this point, one might be wondering just what exactly property tax pays for. According to FreeAdvice Legal, the tax collected typically goes towards a number of public programs. Road and maintenance work in your community are paid for by your property taxes, as are the salaries of your local government. Public spaces such as parks are also paid for this way, as are public transportation, the police, fire-fighters and public schools, traffic, and street lights.
Depending on where you move, you may have to pay additional fees for amenities, such as in gated communities with private security, and shared private property. If you rent your property, you’ll also have to pay tax on the income generated.
Tax breaks for homeowners
While property tax can be a significant expense, there are a variety of programs that can offer tax relief to homeowners. For one thing, your mortgage interest is deductible, and should you own/operate a business out of your home, that can be another significant tax break. If you happen to rent out your property, even just a room on Air BnB, certain home improvement costs can also be deducted. Another important factor to consider is that the property tax you pay is deductible, although keep in mind new legislation, caps deductible property tax at $10,000.