Property Tax Basics

Property Tax Basics

When thinking about purchasing a home, knowing your property tax budget is as important as knowing your purchase price budget. It’s essential that you understand not only how much you will be paying, as it is an annual fee that increases over time, but also what you get for that money.  This can be a determining factor in which towns you consider buying in.

What are Property Taxes?

The property tax amount is a value assigned by the town that a property owner pays to keep the local government running.  This covers services like the police department, DPW, and the majority of tax dollars collected go to the school system.  In northern Bergen County, it is not unusual to see 70%-80% of the tax budget support education. In lower-income areas, they receive state and/or federal funding to help offset the education expense.

Because municipalities need these funds in order to operate if property taxes are not paid they will be auctioned off to the LOWEST bidder. The “bid” is the interest rate being offered, it can be as high as 18%. The property owner then has 2 years to repay the taxes as well as the interest.  If that does not happen, the person who purchased the tax lien has the right to foreclose on the property.  Property tax liens ALWAYS TAKE PRECEDENCE over all other liens including mortgages.

Determining Property Taxes

Many people assume that the more affluent a town the higher the property taxes.  While it’s true that more expensive houses typically have higher taxes since the home’s value is higher, affluent towns are not always the ones with the most expensive taxes.

For example, as of 2021 statistics, Alpine has the highest median household income in Bergen County and it also has the lowest tax rate. For example, I showed a $2M home in Alpine last year with taxes of just over $10k. According to the NJ Treasury in 2021 the general tax rate for Alpine was below 1% while Little Ferry, which has a significantly lower median household income, has a general tax rate above 3%

Property Tax Equation

Each town has a general tax rate which is a multiplier used in determining the amount of tax levied upon each property. It is expressed as $1 per $100 of taxable assessed value. Tax bills are calculated by multiplying the home’s assessed value by the general tax rate.

We know that property values vary greatly from town to town and that even if you could find a $500k home in Alpine it would not be anywhere near the size or condition of a $500k home in Little Ferry.  But for this example, strictly comparing the impact of general tax rates let’s calculate the property tax bills on a $500k home in both Alpine and Little Ferry.

Alpine Tax Bill:                     $500,000 x 0.777% = $3,885

Little Ferry Tax Bill:           $500,000 x 3.234% = $16,170

It is important to note that towns with significantly lower tax rates such as Alpine, Englewood Cliffs, Paramus, etc. typically have a higher cost of entry, meaning homes in these towns cost more than identical homes on similar streets in neighboring towns.

Is It Worth It?

Once you know the cost of a home’s property tax, you need to decide if you feel the value is worth the expense.  Now everybody is going to say their taxes are too high, that’s human nature, but I ask my clients to really consider if they are getting their money’s worth. 

If you have kids, what is the school system rated?  Do you feel comfortable sending them to the public school or will you opt to pay for private school in addition to your taxes?  If you don’t have kids, school systems are still something you might want to consider for resale purposes, but it allows you additional flexibility if you need to stick to a stricter budget.

Does the town collect your garbage or do you have to hire a trash collection company? 

When I have clients considering lower tax areas I have them work with their loan officer to calculate the total cost of the home including taxes over the course of a 30-year mortgage.  Sometimes it makes more financial sense to buy the more expensive home and pay less in taxes.

Assessed Values and Re-assessments

The assessed value is a property's determined valuation to calculate the appropriate tax rates. For those who have purchased in the past, this is what happens when the bank sends the appraiser out to determine the home’s value to make sure it is not less than the cost of the loan.  Appraisers look at the size, condition, and location of the home, compare it to others in town, use a few calculations to ensure they are comparing apples to apples, and assign an assessed value.

In 2021/2022 as home values skyrocketed, towns wanting to capitalize on this, announced they are having municipal-wide re-assessments.  They are having appraisers either physically or virtually assess home’s values based on current market prices.  While the large majority of municipalities are not changing the town’s tax rate, raising the assessed value will increase the property tax bill.

List of towns in Bergen County undergoing reassessments in 2022-2023.

What Can Be Done?

Yes, property taxes can be appealed. I can recommend a lawyer who specializes in that area.

If you are over 65 or disabled there is a tax relief program that you may have heard referred to as a “property tax freeze”/ “senior freeze” where you can receive a  $250 tax deduction.

Veterans who were honorably discharged can receive a $250 property tax deduction regardless of their age.

Active military deployed during wartime may qualify for property tax deferment.

100% Disabled Veterans may qualify for a property tax exemption

The Mortgage Company Cuts The Check

I am including this section because even though I explain this to my clients at closing, at least once a year I get a panicked call or two. Your property taxes are calculated in your mortgage payments.  Because tax liens always take precedence, even over mortgages, the bank wants to ensure they are being paid.  So you pay the bank and the bank pays the town. You will still get a bill from the town telling you what the quarterly taxes are. If you are nervous you can always call your mortgage company and verify the taxes have been paid.

Links:

Property Tax Rates: NJ Division of Taxation - General Tax Rates by County and Municipality (state.nj.us)

Senior Deduction: https://www.state.nj.us/treasury/taxation/questions/senior-freeze.shtml

Veteran Tax Deduction: https://www.state.nj.us/treasury/taxation/lpt/lpt-veterans.shtml

Active Military Deferment: https://www.state.nj.us/treasury/taxation/lpt/lpt-activemilitary.shtml

100% Disabled Veteran Exemption: https://www.state.nj.us/treasury/taxation/lpt/lpt-disabledvet.shtml

Bergen County Town 2022-2023 Reassessments: htt ps://co.bergen.nj.us/bergen-county-board-of-taxation/about-board-of-taxation-revaluations-and-reassessments