Tax abatements cut down your homeownership costs by reducing what you owe on your property taxes. It’s one of the many benefits to owning a home.
Some clients we work with are considering buying a home, yet they have questions about property taxes. If this sounds like you, keep reading for a deep dive into a common tax strategy used by homeowners across New England.
Quick background on municipal property tax abatements
A real estate tax abatement gives a homeowner one year’s worth of property tax reductions. Abatements exist for a few reasons. For one, they can help homeowners save money on their property taxes in response to various circumstances.
This can potentially help homeowners stay in their homes, which ultimately helps the city keep its residents there longer.
Additionally, tax abatements have been known to spur economic development by promoting new construction, business developments, and even home renovations. It’s a strategy to ultimately make cities and towns more attractive places to live as they give residential and business property owners tax breaks that incentivize them to stay local.
Before going any further, let’s take a look at Rhode Island’s property tax rates for the tax year 2020.
If you live in, or you’re planning to live in Rhode Island, click here to see your municipality’s property tax rates.
An appraisal is different from a tax assessment
Before we get into the nuts and bolts of what the tax abatement process looks like, let’s point out the difference between an appraisal and a tax assessment. Many homeowners get confused about the difference and often mistake one for the other.
- Appraisal – Typically requested by a lender or another private entity, this process determines your home’s current market value. Your home’s appraised value is determined independently of the tax-assessed value determined by your municipality.
- Tax assessment – Performed by your municipality’s local tax assessor, a tax assessment is done to determine your home’s assessed value. The city establishes your home’s property taxes by multiplying your state tax rate by the assessed value.
It’s worth noting that a lower tax assessment is preferable.
A lower assessment equals lower property taxes. You can challenge your home’s assessed value by following the steps outlined by your city or town hall.
How do I get a real estate tax abatement?
A property tax abatement is performed in coordination with your local tax assessor. The petition to receive it is done at city hall, although some municipalities have their own processes, so be sure to check your municipality’s specific protocols.
Generally, here is what the tax abatement process looks like:
1. Submit a petition with your local tax assessor at city hall or an official city website.
2. Prepare to submit additional paperwork, including income verification and comparable sales that support your home’s value.
3. Your local tax assessor will review your property.
4. After reviewing many different factors, you will be notified about the outcome of your petition.
Remember, the point of this process is to correct misinformation on your property’s tax record. For example, combining bedrooms or finishing your basement could affect your home’s value.
Be advised that you are not obligated to let the assessor view the inside of your home. In fact, doing so will likely increase your home’s property taxes. This can be especially true if you’ve made any updates to your kitchen, bathrooms, and home office space. Cities and towns don’t often lower a property’s tax assessment without justification and/or financial hardship.
Besides saving you money on your property tax bill, these exemptions are deducted from the total amount that you would owe. See below for popular tax exemptions:
- Homestead tax exemption. This is one of the most popular. A homestead refers to your primary residence. Check to see if the city or town your property is located in offers a homestead tax exemption.
- Senior tax exemption. If you are over the age of 65, you could be eligible for a tax exemption from your municipality.
- Disabled tax exemption. Suppose you have a documented disability as registered with the Americans with Disabilities Act. In that case, your city or town may have a set exemption for you to claim from your property tax rates.
- Military tax exemptions. Disabled veterans may have the option of receiving a tax exemption from their municipality. These programs can often be complicated, so don’t be shy about contacting a VA resource who can sort through this with you or a loved one.
Please note that while some of these circumstances are federally categorized, the actual tax exemptions are locally administered. Your city or town will determine the amount of these exemptions, if offered, along with the assessed value of your home.
These tax exemptions can also be earned simultaneously with your tax reduction, which could produce further savings.
The bottom line on a real estate tax abatement
If you’re looking to buy or even sell a home, taxes are a big item that are worth considering. Therefore, buyers and homeowners should know their options.
We help homeowners and house-hunters make property choices that bring wholeness to every aspect of their lives. Our entire team is here to help you make decisions that work best for you.
Contact us with any questions you have about property taxes and what they mean for buying, selling, and staying in the home of your dreams.