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How Real Estate Property Taxes Work


What Makes Real Estate Property Tax Bills Change
New developments, like the Trump International Hotel & Tower in Chicago, could effect changes in property tax bills.
New developments, like the Trump International Hotel & Tower in Chicago, could effect changes in property tax bills.
Tim Boyle/Getty Images

As mentioned earlier in the article, an actual property tax rate rarely changes. If a government needed to bring in more revenue through real estate property taxes, it's more likely that the government would increase the assessment value. Increasing the assessment value would increase the taxable value of your property. Multiply this higher taxable value by the same old property tax rate, and you've got yourself a bigger tax bill.

What else might cause your tax bill to change? Real estate tends to increase in value over time. Because of this, property tax assessors usually reassess the value of real estate every few years. For example, county tax assessors in Illinois reassess properties every four years (every three years in Cook County) [source: Illinois Department of Revenue]. When real estate increases in value, the first number in the property tax equation increases, thereby increasing the tax bill. To avoid excessive property taxes as real estate increases vastly in value, a government might adjust its assessment or tax rate.

A decrease in real estate value, perhaps due to natural phenomena (a housing development becomes a flood plain) would have the opposite effect on the tax bill. But if a local government can't afford to lose the revenue it acquires through real estate property taxes, the government might increase its assessment rate or even its property tax rate.

When new businesses come into a community, they generate income. When people build new houses on previously undeveloped land, property value increases. In these cases, your tax bill could actually decrease, because the property tax could be spread across more properties.

Changes in a government's budget also could increase or decrease your tax bill. If your town government wants to build a new high school, the town government's budget might increase. If the government can't get funding through other sources, a change in the property tax calculation could increase your tax bill. Likewise, a smaller budget could decrease your bill.

Local governments make a lot of money from sales taxes. If tourists flock to your town every summer to participate in the Rose City Festival of Toys and Miniatures, your town government probably receives a nice influx of revenue from summer tourism. If turnout at the festival declines over the course of several years, your local authorities may look to other sources of revenue to make up for the shortfall. They may look to increase real estate property taxes.

It's great that your local government's budget is so healthy, but what about your own budget? On the next page, learn how to make your real estate property taxes work for you at income-tax time.