Depending on the state in which they reside, American taxpayers will find a number of property tax relief measures at their disposal. While property tax is, for the most part, a local tax, it is state law that authorizes its imposition. States extend different types of property tax relief to citizens, and over the last few years, the type and number of tax reliefs available to taxpayers has increased significantly.
States typically offer one of the following eight types of property tax relief programs:
1. Homestead exemptions or homestead credits
A homestead exemption law offers homeowners, regardless of their income, a property tax exemption which is applicable to their home. It usually takes the form of a reduction in the assessed value prior to the application of the property tax rate. For example, in Florida, a state which provides for a homestead exemption, taxpayers are granted a deduction of $25,000 in the value of land to which a property tax applies. Homestead exemptions may be locally or state-funded. This form of property tax relief generally applies to a fixed dollar figure, such as the first $60,000 of the assessed value. The rest is taxed at the regular rate. The elderly, who are often on a fixed income, sometimes benefit from homestead exemptions to a greater extent than the remainder of the population. Typically financed by the state and also designed to provide a relief akin to that offered by exemptions are homestead credits, which are usually deducted directly from a homeowner's property tax bill.
2. Circuit breakers
Circuit breaker programs offer relief or break the tax circuit by reducing the property tax liability for low-income taxpayers who are allocating a large portion of their family's income towards property taxes. To be eligible for refunds from these state-funded programs, the property tax burden shouldered by individuals and families must exceed a fixed percentage of income at different income levels. Currently, eighteen states offer property tax circuit breaker programs, collectively delivering an annual amount of $3 billion. The different state programs, however, vary widely in administration and scope. For instance, maximum benefits differ significantly, ranging from $2,000 in Maine to $200 in Oklahoma. In eight states, circuit breakers are reserved to individuals with disabilities and senior citizens. In the remaining 10 states, individuals and families qualify regardless of disability status or age. In 16 states, both renters and homeowners can avail themselves of this form of property tax relief. States impose different income ceilings as a threshold for eligibility.
3. Property tax freezes
4. Tax deferral
Tax deferral programs enable taxpayers (usually the disabled and/or the elderly) to postpone tax payments until the property is sold or the owner dies.
5. Split-roll property tax system
Pursuant to this tax regime, property is labeled as either 1) residential 2) agricultural or 3) industrial and is taxed accordingly, or at different rates.
6. Current use assessment
This form of property tax relief enables taxpayers to have their property assessed at its current use (i.e. farming), rather than its best and highest use, which is typically the case.
7. Restrictions on tax rates
The most prevalent type of state limitations on local property taxes are property tax rate restrictions. Municipalities in thirty-three states are covered by specific and/or overall tax rate restrictions.
8. Release of property tax liens
A property tax lien can be withdrawn if 1) the IRS concludes that it was not filed pursuant to procedure, 2) the taxpayer agrees to participate in a payment plan when the lien is filed, 3) it would be in the best interest of both the IRS and the taxpayer to do so, or 4) payment can be effectuated in a more expeditious manner otherwise.