(Bloomberg) — U.S. homeowners enjoying historic gains in the value of their property will likely face a hit next year through a higher tax bill.
According to Labor Department data, property taxes will see sharper increases this year. They have risen the most in 15-years in 2020. Last year’s median home price for single-family, previously owned homes reached new heights. They are expected to rise even further in 2021. This could make it difficult for homeowners and force them into deeper savings.
In 2020, six counties in New York City saw their median property taxes bill exceed $10,000 each: Bergen and Essex Counties of New Jersey and Nassau, Rockland, and Westchester Counties.
Fairfield County in Connecticut, and Marin County in San Francisco are among the top twenty.
Last year, the country’s median property tax bill rose $194 to $2,353. While the increase reflects a boost in property value, and therefore enhances the homeowner’s wealth, the individual typically doesn’t realize such gains until the property is sold or refinanced. But tax collection doesn’t wait for either occurrence, and the bills have to be paid regardless.
“Unlike paper gains on stocks which don’t lead to tax consequences until you sell, paper gains in real estate have more immediate financial consequences in the form of real estate taxes,” said Danielle Hale, chief economist at Realtor.com.
While no one really likes taxes, property taxes are generally the most-dreaded because of the high amount owed and the fact that they’re presented in a tangible bill from state and local governments. That’s unlike income tax, which is usually paid through payroll deductions and can often result in an annual refund due to overpayment.
Related story: Americans Haven’t Been This Down on Housing Market Since 1982
Property taxes are based upon an opaque home valuation estimate as prices for similar homes can vary widely, and they don’t settle until market forces decide on a price. Additionally, property taxes tend to be lagging, as they are based on a home’s value the previous year.
This problem was evident a decade ago when property taxes were levied on homes whose values were significantly higher than they are today due to 2008’s recession.
The situation will be different this year as well. Although many local jurisdictions restrict the amount of property tax an assessor may impose on a resident, the rise in real estate values will most likely result in a larger tax bill.
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