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Rising Home Prices Do Not Make Your Property Taxes Go Up

You have all heard it many times, “Oh my, these rising home values are going to kill me at tax time."

 

However, this is a total myth; simply stated, your taxes go up when your town spends more money this year than last year – period.

 

Property taxes are assessed based on a rate per thousand of value; so, it seems natural that when home values go up, your taxes go up – but this is FALSE. It is counterintuitive, so let’s look at an example:

 

Suppose Marblehead has a budget of $100 million, and the total valuation of all the homes in town is $10 billion, then the tax rate is $10 per one thousand dollars in property valuation. (Note: This example is close to Marblehead’s reality.)

 

If your home is worth $200,000 your property taxes are 200 * $10 = $2000.

 

Next year, say for the sake of argument, the budget stayed the same, $100 million; but homes have doubled in value, throughout Marblehead, to $20 billion. Then the tax rate would drop to $5 per thousand – your home value doubled, but the tax rate went down.

 

Your taxes would be the same – because the budget is the same; your home, now worth $400,000, would again pay just $2000 in taxes (400 * $5 = $2000). So, you see it is not home values that govern the property tax fee, it is an ever-increasing budget that raises property taxes.

 

Item

Year 1

Year 2

 

 

 

Town budget

$ 100,000,000

$ 100,000,000

Total of all property values in town

$ 10,000,000,000

$ 20,000,000,000

Tax rate (per thousand)

$ 10

$ 5

Your home value

$ 200,000

$ 400,000

Your taxes

$ 2,000

$ 2,000

 

Government leaders are only too happy to use this misconception to blame rising taxes on anything but their never-ending quest for more tax dollars.

 

There are exceptions; for example, you add a second floor to your home and increase its value, but in general – if your property taxes are going up– your town is spending more money and you can take that to the bank.

 

Jack Buba
Palmer Road, Marblehead

 

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