Why Did Property Taxes Increase So Much?

Property taxes are a fundamental source of revenue for local governments, levied on real estate and paid by property owners within a jurisdiction. These taxes are typically assessed annually or semi-annually, providing essential funding for community services. Many property owners observed notable increases in their property tax bills in 2023, leading to questions about these changes. Property taxation is managed at the local level, leading to variations in rates and assessment practices.

Rising Property Values and Assessments

A primary driver behind increased property tax bills is the appreciation of property market values, which directly influences assessed values. Market value for a property is determined by factors such as supply and demand, prevailing interest rates, desirability of location, and broader economic conditions. The robust real estate market experienced in the years leading up to 2023, characterized by sustained buyer demand and limited housing inventory, contributed to substantial increases in property values.

Local tax assessors periodically evaluate properties to establish their assessed value. Property tax bills in 2023 often reflected assessments based on elevated market values from prior real estate booms. Jurisdictions use various revaluation cycles, from annual to multi-year periods, to capture market value changes. When a property undergoes revaluation, the updated assessment reflects current market conditions, often resulting in a higher assessed value and larger tax obligation.

Increased Local Government Spending

The budgetary needs of local governments also play a significant role in property tax increases, as these needs influence the property tax rate. Property taxes are the largest single revenue source for local governments, funding essential community services. These services include public schools, police and fire departments, infrastructure maintenance, parks, and sanitation.

Local government expenditures increased in 2023 due to several factors. Inflation drove up costs for goods, services, and materials, such as fuel, construction materials, and utilities. Labor costs for public employees like teachers and first responders also rose, influenced by inflationary pressures and competitive markets.

Population growth or demographic shifts can escalate the demand for public services, necessitating additional resources. New community projects, infrastructure upgrades, or expanded public programs also require funding. When these governmental expenses rise, local authorities may adjust the property tax rate to generate sufficient revenue, even if property values have remained stable.

The Assessment Process and Your Tax Bill

The calculation of a property tax bill involves a structured process that begins with the local assessor’s office. Assessors determine property values for tax purposes, often using mass appraisal techniques. Common methodologies include the sales comparison approach, which analyzes recent sales of comparable properties, and the cost approach, which estimates the cost to replace a property minus depreciation.

There is a distinction between a property’s “market value” and its “assessed value.” Market value represents what a property would likely sell for, while assessed value is the portion or percentage of that market value used for tax calculations. For example, a property with a market value of $300,000 might have an assessed value of 30% or $90,000. The tax rate, often expressed as a millage rate, is then applied to this assessed value to determine the final tax amount. A mill equals $1 of tax for every $1,000 of assessed value.

A typical property tax bill itemizes several components. These components generally include the property’s assessed value, the tax rate(s) applied by different taxing authorities such as school districts, county government, and municipal services, and any applicable exemptions. Exemptions, such as homestead exemptions, can reduce the taxable assessed value, thereby lowering the overall tax burden.