Should Retirees Worry About Rising Home Values and Taxes?

couple reviewing home value documentation

Consider this a good news/bad news scenario. The good news for homeowners is that 2021 marked the hottest housing market in U.S. history, according to Zillow. While the site doesn’t believe that the record will be broken in 2022, its economists do predict that strong price growth and sales volume will continue. The bad news is that property tax rates are based on your property value. With rising home values, your home may be worth more, but your cash flow may take a hit in the form of higher taxes.  

“Certainly, over the past year, property values have been rising at a much higher level than in previous years,” says Clark D. Randall, a certified financial planner with Financial Enlightenment in Dallas, Texas. “This will undoubtedly lead to higher property taxes as jurisdictions look for revenue and raise the home values on the tax rolls, impacting seniors more than others as most are on a fixed income.” 

If you’re a retiree on a fixed income, higher property values may leave you with some questions.  

How Worried Should I Be About Rising Home Values?  

It depends on where you live. Homeowners pay property taxes, which fund public services, such as infrastructure and schools. The amount you pay is based on the assessed value of your home. Cities and counties reassess homes on a set schedule, which varies by location and can range from every year to every five or six years.  

Your property tax bill is calculated by multiplying the value by the tax rate. Tax rates can vary greatly from state to state, and even from city to city. If you live in an urban area, a region that collects fewer commercial taxes, or a state with lower income taxes, you likely pay higher property tax rates.  

Do I Have any Protection? 

Fortunately, many states offer some form of property tax relief to older homeowners, says Randall. “Some states freeze property taxes for seniors, including New Jersey, Oklahoma, Rhode Island, Tennessee, and Texas for people aged 65 and above, and Connecticut for people 70 and above,” he says.  

Other states freeze assessments, adds Randall. For example, Washington freezes assessments for people over 61, Georgia freezes assessments for homeowners aged 62 and up, and Arizona, Arkansas, Illinois, Louisiana, New Mexico, Oklahoma, Rhode Island, and South Dakota freeze it for people 65 and older.  

“While the provisions vary among these states, it does make reduce the financial impact of rising home valuations more bearable for seniors,” says Randall.   

You may also qualify for property tax breaks through city or county guidelines, adds Jacqueline Schadeck, a certified financial planner based in Atlanta, Ga. “For example, several counties surrounding metro Atlanta provide tax breaks based on age or income to assist with rising home prices and fixed income concerns,” she says. “It’s important to study your county’s rules and seek guidance from them when reviewing your taxes. I have had clients move short distances to accommodate downsizing of their home and cheaper taxes in retirement.”  

What Are My Options if My Property Taxes Are Raised? 

Chris Diodato, a certified financial planner with WELLth Financial Planning in Palm Beach Gardens, Fla., recommends that retirees take advantage of local homestead exemptions which can not only reduce the amount of property taxes assessed for a property but also cap future increases in property taxes. To qualify for a homestead exemption, a property must typically be one’s permanent, full-time residence, usually defined as living in for more than six months a year. 

“In Florida, for instance, tax increases on homesteaded properties are capped at the lesser of the annual change in the Consumer Price Index or 3% per year,” he says. “Non-homesteaded properties are not afforded this protection. These exemptions are sometimes portable, meaning tax savings can be carried from property to property within a state.” 

If you receive an updated assessment and believe your home has been overvalued, another option is an appeal. While the process varies depending on where you live, you can get information by visiting your city or county tax assessor’s website.  

Before you start the process, though, do your research by looking at recent sales of comparable homes in your neighborhood on Zillow or by asking a real estate agent. An appeal isn’t a guarantee that your assessment will be reduced. In rare cases, you could end up having your assessment raised because the value was undervalued.  

Property taxes can be a big concern when you reach retirement. The best plan of action in the face of rising home values is to make sure you understand your rights and prepare your budget accordingly.  

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