What, you may ask, do property taxes have to do with a retirement plan?
Other than exerting a negative force on the available cash in your plan, once you do decide to begin distributions, they also have a positive influence on the quality of the community you live in. So if your taxes are excessively high, should you try to get them lower? If so, define excessive.
Are you paying too much?
In many parts of the country, homes are worth less than they were two years ago. But what often does not follow those changes in valuations are the taxes assessed. For those lucky enough to still have a job, have maintained their salaries and have seen a minimal decline in the value of their house, challenging the property taxes you are currently paying might be counterintuitive and not worth the effort. While a reassessment of your home does not take into consideration your ability to pay, it might be worth considering if the information the assessor has on your home is not correct.
During the heyday of fast money, folks did remodels, bought houses in neighborhoods that were previously out-of-reach, and otherwise paid no mind to the recurring, long-term effects of those projects and purchases. When resale was the only consideration, the cost of those renovations was often overlooked and only calculated as part of the resale potential. Property taxes were simply relegated to the status of cost-of-doing-business.
Fast forward a couple of years and you have homeowners who are wondering why their taxes are so high. There are a couple of things you can do to see if your assessment is accurate (this is different than challenging your valuation, something that can be done if a large number of homes have lost a significant amount of value). Assessments deal with such details as square footage, number of bathrooms, type of roof, etc.
What can you do?
There are several ways to approach the subject. The DIY method requires getting the assessor’s card. This is a worksheet with all sorts of vital information about your house including previous owners. This is the first step in checking the assessor’s accuracy. Perhaps a room that was assessed as a bedroom has no closet or a bar sink in the family room is listed as a kitchen. These are challengeable items.
The next step involves doing some legwork (checking at least five comparable properties in your neighborhood) and homework (not only the assessor’s math but also the process of making the appeal, preparing a written summary). Historically, few homes actually are found to be under-taxed (something to worry about if you uncover a mistake in your favor) and of those who feel as though they were over-taxed, only around 5 percent of the homeowners actually challenge the taxes they pay.
The vast majority of the grievances were filed by businesses that do the legwork and homework for you. The cost is substantial, from a fixed percentage of the lowered tax bill over one to two years all the way to the cost of filing. The success rate is rather good. But this is comparable to hiring an attorney to fight a parking ticket.
Are there reasons to challenge property taxes?
If you are preparing your home for resale and feel as though the lower property taxes might add to your home’s appeal, this might be worth the effort, particularly if, when compared to similar homes, your taxed assessed value appears significantly lower. (Most reassessments change the taxed owed by as little as 5 percent).
If you are preparing for retirement, in other words, you intend on staying put for quite some time, the lower taxes may help in the short-term. But as I mentioned earlier, your municipality can only be stretched so thin before it begins to cut vital services. And although you may not think school closures or other service cuts will affect you, you need to think again.
Some communities have made revaluations a priority to cut back on the cost of the increasing tax challenges. Keep in mind, these are usually temporary fixes, but the community cuts that follow may be more permanent.
If you are planning to stay and you believe that your tax bill is too high, you appeal it and win, be money smart and channel the savings into your tax-deferred retirement investments. This is like “found money” and is the best source of future benefits.
Paul Petillo, Managing Editor of Target2025.com, BlueCollarDollar.com, and a regular contributor to MomsMakingaMillion radio