Property tax is a very important tax in terms of collection. However, sometimes one may have one or more properties but not such a good income and thus, property tax may turn out to be too difficult. Fortunately there are several forms of property tax relief that can provide a lot of ease during low income periods. These types of relief fall into different categories and an with the help of an experienced irs tax attorney, tax reductions can be achieved in different ways.
What is the purpose of property taxes?
Property taxes are a primary source of funding for local government units, including counties, cities and towns, townships, libraries and other special districts including fire districts and solid waste districts. Property taxes are administered and collected by local government officials. These funds are used to pay for a variety of services including welfare; police and fire; new construction and maintenance of buildings; local infrastructure like highways, roads and streets; and the operations, including salaries, of the local units of government.
Property taxes are an ad valorem tax, meaning that they are allocated to each taxpayer proportionately according to the value of the taxpayer’s property. The statewide average revenue distribution for each property tax dollar is as follows:
- County: $0.17
- Township: $0.03
- City/Town: $0.19
- School: $0.41
- Library: $0.04
- Special Unit: $0.07
- Redevelopment: $0.08
What types of property tax relief are available to taxpayers?
- Exemptions – an exemption is a full or partial waiver of property tax liability for a given property. Exemptions are generally only available in limited circumstances, such as for not-for-profit organizations, religious groups, and economic development purposes.
- Deductions – a deduction is a subtraction of assessed value for a property prior to the calculation of tax liability. Deductions are the most common types of property tax relief available to taxpayers and include relief for primary residences (homesteads), mortgaged property, veterans and disabled citizens, to name a few.
- Credits – a credit is a type of property tax relief applied directly to the tax liability after it is initially calculated. Common property tax credits include the circuit breaker credit and the local property tax replacement credit.
The different categories of property tax relief address different problems. These categories include Property tax relief for senior citizens, property tax relief for first time home buyer income tax, and property tax relief for low income tax payers, property tax relief for individual income tax payers, and property tax relief for long-term owners. Also, there is an exemption for property tax for homestead.
Property Tax Relief for Senior Citizens
Property tax relief for senior citizens makes sense because it protects those who due to retirement have a lower income and thus cannot afford to pay the same taxes than before retiring. The income reduction experienced by most senior citizens and the higher costs on health insurance and other expenses justify this type of relief that provides their budget with some ease.
Property Tax Relief for First Time Home buyers
Those purchasing a property for the first time usually do so to establish themselves and often start a family. The government in order to provide protection to this particular situation offers reductions and exceptions on first time homebuyer’s property tax and rebates or refunds that can be applied to income tax. It also contributes to encourage the construction and house loan businesses.
Property Tax Relief for Low Income Tax Payers
There are also people that have low income even if not retired. For those with a low income there are also tax relief solutions. Just like with senior citizens, people with low income cannot afford high taxes since they need their income to cope with other expenses. Recognizing this fact, the government provides reductions on property tax for those who can show proof of a low income that would not otherwise let them afford the full tax returns.
Property Tax Relief for Individual Income Tax Payers
Individual Income tax Credit provides those with low income a refund of taxes that includes property tax. This tax credit is one of the most important poverty reduction tools of the country (other countries use it too) as it returns important amounts paid on taxes to those who have low earnings. There is a high amount of uncollected tax credits from people that either do not know or will not take the trouble to fill the forms needed to collect this money. We always suggest those with low income to resort to nonprofit organizations that can aid in the process of obtaining Individual Earned Income Tax Credit.
Property Tax Relief for Longer Term Owners
Long term owners can obtain reductions on the amount of money they pay for property tax. Regulations defer from one state to another but most of them have some sort of differential taxation between new owners and long term owners. For further information on this issue and all of the above, you should consult with a consultant agency specialized on taxes. There are also nonprofit organizations that can provide you with assistance and information on these subjects.
How is the value of my property determined?
The tax assessment and billing cycle begins with the assessor’s valuation of your property. Just like other states, in Indiana properties are valued using mass appraisal techniques. With mass appraisal, your property is looked at in conjunction with other properties in your area. Assessors consider age, grade, and condition. Finally, in a process known as annual adjustment, or “trending”, each year real property sales data is used to determine if the value of properties in your area should change to match the market value found in the sales of recent properties.
(Prior to 2002, property was reassessed every 5 to 10 years. That left taxpayers with a large change in their assessments between reassessments, which often led to sudden increases in property tax bills.)
Learn more about Annual Adjustment and Reassessment.
How is property tax calculated?
The Government has announced the introduction of progressive tax rates for all residential properties from 1 Jan 2014 and 1 Jan 2015. Others properties (such as residential land, commercial and industrial buildings), will continue to be taxed at the Non-Residential Tax rate of 10%.