Why Property Taxes Are the Most Hated Levy in America

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Many polls say property taxes are the most hated levy in America. Kacper Pempel/Reuters

This article originally appeared on the Motley Fool.

No one likes paying any kind of taxes, so you might think that in any ranking of the most-hated tax Americans have to pay, every tax would all tie for first. That said, we're in the middle of income tax season, and there's been plenty of political and tax policy discussion about the negative impacts of the estate tax, which many call the death tax. Yet neither the income tax nor the estate tax turns out to be the most-hated tax, instead giving way to a tax that nearly everyone pays either directly or indirectly.

Why the property tax is the most hated tax

About a decade ago, pollsters at Gallup, CNN, and  USA TODAY  sought to find out what was the most-hated tax. Many undoubtedly expected that the federal income tax would be the winner of this dubious distinction, given all the time that people spend on their returns. Yet by a more than 2-to-1 margin, property tax topped income tax as the most hated, with more than 40 percent of those surveyed picking it above the numerous other tax choices available.

1. Property tax isn't progressive

Most property taxes are imposed as flat rates on the value of the property you own. That stands in stark contrast to the income tax system, where higher-income taxpayers pay a higher percentage of their income in taxes than those with lower incomes. Indeed, many taxpayers at the low end of the income spectrum get money back from the government at tax time through various credits aimed at poorer Americans.

Some will point out that those who don't own homes don't have to pay a property tax bill. However, landlords always seek to pass through their costs in setting rent, and when property taxes rise, so do rents in order to match the higher tax expense. That leaves everyone facing the effects of property tax, either directly or indirectly.

2. There's almost nothing you can do to cut your property tax

Most taxes let you take action to reduce your tax. Don't like sales tax? Buy fewer things. Want to save on income tax? Contribute to a traditional IRA or take advantage of any of dozens of deductions and credits.

By contrast, the property tax is almost entirely out of your control. If you own property, you owe the tax, and the calculation leaves little room for error. As you'll see below, you can contest your property valuation, and that can reduce your tax somewhat. But in general, tax planning doesn't get you very far with the property tax.

3. Property tax is constantly changing, and usually rising

Most tax rules stay relatively constant. Sales taxes change every once in a while, and minor bracket adjustments to income tax occur with inflation every year. But property taxes are subject to the whims of the local government entities that set them, and even with some states having laws in place to prevent undue fluctuations in property taxes, the rises some homeowners face can be quite dramatic from year to year. That makes it hard to plan a budget for property taxes.

4. You might end up paying many different property taxes

With most taxes, there's just one taxing authority reaching into your pocket at any one time. The IRS and your state tax board are in charge of income taxes, and retailers collect the sales tax in a discreet way. But with property tax, you can end up paying several different government entities, depending on how your local taxing authorities work.

For instance, some localities wrap state, county, and city property taxes into a single bill. Some municipal services, such as garbage collection or sewer access, can also get added into a property tax bill. All these taxes can add up to a huge bill, and it can be very confusing to see who's charging you how much based on what category of spending. That makes it even tougher to look for ways to lower your tax.

5. Rules for the few property tax breaks out there are hard to find

Even in places where provisions exist to give property owners a tax break, it can be hard to get information about them. For instance, many states offer lower rates for seniors over age 65, but in some cases, you have to apply for favorable treatment or else you won't get it. Other provisions calling for exempt homesteads can be confusing and tricky to claim. Work with your local assessor to find out what breaks you might qualify to receive and take full advantage of them.

6. Deduct your property tax on your income tax return

You're allowed to take property taxes paid as an itemized deduction on your federal income tax return. That's obviously helpful only if you itemize rather than taking the standard deduction, but a straight deduction for taxes paid can often save you a substantial fraction of what you pay in property taxes and reduce what you have to pay the IRS.

7. Know what to do if you disagree with your assessment

Property tax is based on valuation, and assessors sometimes get home values wrong. You have a right to appeal assessments if you disagree with them, and while every locality's rules are slightly different, most of them give you one or more chances to persuade the tax man to make a change.

To have a fair shot of winning, you have to have evidence that the assessed value of your home doesn't match up with market conditions. Even comparable sales figures won't always win the day, but they'll help you a lot more than just asserting that you've been treated unfairly. Follow the rules, and you're more likely to win yourself at least a modest break.