Property Taxes


The mainstay of local taxation is the tax on real estate, known as the property tax. It is used to fund an array of critical state and local services, most notably public schools. Policymakers face challenges with the tax's structure and administration. This includes its burden on households with low incomes. While property taxes mainly exist at the local level, states play an important role in creating property tax relief programs. States are also responsible for setting the parameters and practices for assessing the tax. 

The property tax is the most burdensome tax for many individuals with low incomes and older people. It affects people directly as homeowners and indirectly as renters. Landlords may pass on tax burdens in the form of higher rents. The tax is imposed on an illiquid, indivisible asset rather than income. Long-term homeowners have little control over their current tax liabilities, as they are determined by decades of unforeseeable market dynamics. Thus, many people, particularly people with low incomes, have difficulty coming up with the money to pay the tax. 

All states have implemented various relief programs to deal with this problem. 

The following are the most common ways in which states provide property tax relief. 

Circuit breakers relieve the property tax burden when it exceeds a certain share of the homeowner's income. They take their name from the mechanism used to relieve an overloaded electrical circuit. The threshold is typically equal to a percentage of income to benefit residents with low and middle incomes. 

With property tax deferrals, homeowners can postpone payment of property taxes until the sale of the home or the owner's death and help homeowners with low liquid income stay in their homes. Many states limit their deferral programs to older homeowners or those with disabilities. 

The monthly payment option does not reduce the amount of tax liability but helps budget for it. 

Homestead exemptions (or homestead credits) reduce the amount of owner-occupied property value that is subject to taxation (or the amount of taxes owed). Fixed exemptions or credits (not increasing with the value of the property) tend to be progressive but less so than circuit breakers. 

Direct limits on property taxes set out limitations on overall local property tax revenue growth, individual homeowners' property tax liability increases, or their underlying factors, such as assessed values and tax rates. For example, California enacted a significant property tax cap in 1978, known as Proposition 13. These limitations apply automatically, without any action on the part of the homeowner. But they reduce policymakers' ability to respond to changing circumstances. Over time such limitations can undermine funding for essential government services. Among other drawbacks, direct limits create inequities among owners of similar properties. Long-term homeowners become "locked in" their homes because moving triggers a large property tax increase. This relief mechanism does not target those who face the most trouble meeting their tax obligations. Indeed, it often helps the wealthier homeowners the most. 

Finally, funding for elementary and secondary education relies mainly on local property taxes. This may lead to disparities in educational funding among school districts. Residents of poorer districts may face higher effective property tax rates compared to wealthier districts. Yet, they may have inferior educational facilities and services. 



Property tax relief

Property tax relief should be equitable, cost-effective, and targeted to homeowners with low and moderate incomes burdened by their property tax bill.

Voluntary property tax deferral programs should be enacted, especially in the absence of other property tax relief programs or where tax burdens are high.

Any interest charged for the deferral should be at fair and equitable rates.

Property tax relief programs should be easy to participate in and well-publicized.

Property tax caps

States should generally avoid arbitrary limitations on property taxes.

Property tax assessments

Property taxes should be equitable. 

Property tax assessments should be conducted annually and transparently based on fair-market value. The assessment process should be easy to understand. Appeals should be simplified and streamlined. They should be easy to file and pursue. 

The methodology for determining assessments should be made public. Analyses of the accuracy of property assessments should be conducted regularly, with enough detail to be able to identify any systematic property value differences by race, ethnicity, and other factors. Policymakers should strive to eliminate systemic differences attributable to factors other than fair-market value in assessed value and outcomes of the appeals process. 

Policymakers should: 

  • require assessors to meet professional standards, 
  • conduct education and outreach to make people aware of the process, and 
  • make decisions in a reasonable amount of time. 

Property tax delinquencies

Policymakers should reform property tax lien laws to ensure that the process is fair and transparent for homeowners. They should prioritize homeownership preservation. 

Policymakers should: 

  • Ensure that costs are reasonable for homeowners to be able to redeem their homes after a lien is placed. This includes setting maximum interest or penalty rates and a reasonable schedule of fees related to title searches and other items. 
  • Sell tax liens to the highest bidder instead of selling for the amount owed for delinquent taxes. Surplus funds from the sale of the house should be paid to the homeowner. 
  • Provide homeowners individualized clear notice of ongoing proceedings related to liens and sales, with adequate time to redeem their property. 
  • Establish redemption assistance programs. 


Prior to finalizing annual budget decisions, localities should inform taxpayers of the property tax rate required to maintain revenues at the same level as the prior year. 

Policymakers should identify new spending or revenue reductions that warrant any proposed property tax increase. 

Education financing

States should adequately fund and broaden their methods of financing public education. Education financing should be shifted from property taxes to less regressive forms of taxation.