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Land Taxation Essentials - What You Need to Know

Published on Tuesday, October 27, 2015 by Land Century

Property tax is especially high in certain regions of the country. For example, New Jersey has a very high property tax rate, and many residents are moving out of the state because of these high fees. Land taxation, better known as property tax, is not something that is new for homeowners.

Land taxes have been assessed for thousands of years. Even in ancient Egypt, Persia and China, these taxes existed, albeit in a different form.

Historically, land was taxed based on the size of the land owned. But, this is not the ideal measure of the land's real value. If a person owns land in the desert, it is far less valuable because it cannot produce an income in the same way that a lush landscape would provide. These factors are what changed the way land taxation is determined.

How Land Is Taxed Based On Current Trends

Taxes on your land are assessed based on the income-producing capacity of the land. This is a very confusing measure because residential land isn’t income-producing for most homeowners. So, income capacity is based off of the following:

* Structures on the property
* Livestock
* Agricultural equipment

But, many farms are able to enjoy tax perks, which we’ll talk about shortly. Many local governments get the majority of their revenue from property taxes. This is why areas that are affluent often have better public school systems, roads and services provided to them. Every state, county and city will have a different formula for processing property tax.

A tax assessor is brought into the equation to determine the fair market value of the property wherein the tax-assessed value is normally 80% to 90% of the fair market value. The land itself will have a value. This is determined by the size of the land and its ability to make income. For example, farmland may have several fruit trees that would enhance the land’s ability to make income. But, in a residential area the biggest influences are:
The value of the land itself

The structures that sit on the land

You'll also find that the location matters greatly with property taxes. Many homes, depending on the state, will have a higher property tax when they’re closer to the center of town. These are areas where the land is more desirable and have a higher value as a result.

So, if you have a remodeling job taking place, this may increase the total value of your home, resulting in higher property taxes. Your structure, or home, that sits on the land, will have the biggest effect on the property tax value.

The value of your home can be determined in a magnitude of ways. A tax assessor can come out and assess the value of your land and home, or the cost approach can be used for land that does not have improvements. The value of this land is determined by looking at a property that is similar in size and reducing the value of any improvements on the land. It’s a very difficult and complex system that will vary from state to state.

That's why it’s important for you to know the taxation essentials to save yourself money and stay within the guidelines of the law.

Paying Your Property Tax

Property taxes are usually dealt with in the following manner: you’ll either have to pay a quarterly payment, or yearly payment. Quarterly installments may be provided, but you’ll want to check with your local city and state regulations to determine when property taxes are due. In most jurisdictions, you’ll be required to make a lump sum payment on January 1st.

Appealing Your Property Tax Assessment

What happens if your property taxes are too high? You may be able to appeal your property tax assessment. This is done in areas where the overall housing market is lower than it was in the past. For example, if the city's housing market took a dive and your house is worth less now than it was in the past, you may be paying a tax rate that is overvalued. Appealing a tax assessment will require a robust and complex assessment to take place.

You’ll need to provide the following:

* Comparative market analysis of your home
* Photographs of the exterior and interior of your home
* The home's floorplan
* A list of repairs that the house needs
* A list of all buildings that may impact your land value

And, you may also find that grants and exemptions are available. Some cities will allow the elderly to have a tax exemption on the property they own, but this will vary from city to city, or state to state. Farmers, for example, may be able to take advantage of government grants that lower their overall land taxation.

If you own vacant land for investment purposes and there is no structure on the property, you’ll likely pay a rather low tax on your property. But this will depend on the location of your land. If you on prime land in the middle of New York City, you'll pay higher premiums than a piece of wooded land on the outskirts of the city. It’s also important to know that some jurisdictions have limits on how high your property tax can be raised in a certain period of time.

Liens and Seizures

When taxes are not paid, interest will pileup and fines can be assessed. If you continue not to pay your property taxes, you may have a lien against the property. This is very important to know as a real estate investor because a property may have a lien against it. If you buy a property that does have a lien, you’ll be required, as the new owner, to satisfy the lien.

A lien is automatically applied in most cases and will be removed once the payment is provided.
In some cases, failing to pay your land tax will result in a seizure of the land. This means that you lose the entire property as well as any structures that exist on the land.
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