Property taxes are based on a percentage of the land's value. For vacant land, the value depends on what the land could be used for.
If you have vacant land, you are often stuck paying taxes for it every year even though you don't profit from it. Is there any way out of this? Who decides your property taxes, and is there any way to challenge them?
Local governments determine what property taxes people pay. Government assessors estimate the land's value. Laws require the owner to pay a percentage of it, with the percentage being different in different places.
If you own vacant land, you should know a little about how property taxes work. You might know about the consequences of not paying taxes, how to legally avoid paying them by writing them off against other income, and how to challenge property taxes in court.
As someone who eventually profited from some vacant land I lost money on for years, I understand how frustrating it can be to pay taxes on land you don't profit from. There are several ways to minimize these taxes until you can find a way to profit from your land.
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How Do Property Taxes Work?
Unfortunately, landowners in the United States and most other places still have to pay taxes on their land. Even if you own rather than rent your land, it is not free. While this is in some ways unfair, it does encourage people to do something with the land they own instead of leaving it unused.
Some people don't pay their property taxes and face severe consequences for not paying. Don't ever assume that you can get away with not paying taxes. The law will come after you for not paying property taxes or any other kind of taxes.
You also do not have to be making any money from your land to have to pay taxes on it. This makes doing nothing with land you own a bad financial choice. You have to pay taxes on the land, whether undeveloped land or land with buildings.
Consequences Are Serious
If you don't pay your property taxes, the consequences will get worse and worse over time, so you should take care of the situation as quickly as possible. Failing to pay property taxes is similar to failing to pay credit card debt - the longer it goes on, the worse it gets.
You will have to pay interest on an unpaid tax debt, so you will have to pay more if you let the unpaid taxes accumulate for too long. You might have a lot of money problems, but do whatever you can to come up with the money for property taxes sooner rather than later.
If you refuse to pay for too long, sooner or later, your possessions may be confiscated, including your piece of vacant land plus your home on another property. However, unpaid property taxes are not usually enough to drive anyone to bankruptcy, and if your credit score goes down, you can improve it.
Property Taxes Are Based On Land Value
Owning developed land that you don't want to use or sell is worse than owning undeveloped land that you don't use. Anything built on your land may raise the land's value, and that will raise your property taxes. For this reason, it is an advantage to have vacant land when you are worried about property taxes.
However, property taxes on vacant land can still be high, even though they are not as high as for developed land. Vacant land is taxed according to its "best use," so if your land could easily be used for something, it would be taxed more heavily.
Who Decides What a Piece of Land is Worth?
The value of a piece of land is determined by government agencies. In the United States, assessing land is the responsibility of local governments. State, as well as local governments, charge property taxes.
Assessors working for the government will occasionally examine all of the lands in their jurisdiction and place a value on all of this land. Government assessors give each land an identification number.
They periodically have another look at the land and assess the price again. Assessments happen around once every year to once every five years.
How is Vacant Land Assessed Differently?
When assessors look at vacant land, they have to decide what could be built on the land. Could anyone build a home, a farm, or even a power plant in that location?
Zoning matters a lot. The land might be considered rural, residential, or commercial, and this affects the value and the property taxes. How many acres of land you have, what is on your land, what land is worth in your area, and what could legally be built on your land all matter.
You May Be Able to Deduct Property Taxes
A lot of people pay more taxes than they are legally required to because they don't take advantage of opportunities to lower their taxes. Depending on your sources of income, you might be able to deduct your property taxes from other taxes you pay.
If you make any money from renting to tenants and own property as an investment, you can deduct your property taxes from your rental income. This won't work for everyone, but you can save a lot of money sometimes.
Take advantage of this opportunity if you have it. Even if you can't write it off against rental income, there may be another way to legally avoid paying property taxes.
How Much Property Tax Will You Pay?
How are property taxes calculated? First, a county assessor decides what a piece of vacant or used land is worth. Then, they use the property value to determine property taxes.
Vacant land is only worth as much as the land itself. Improved land has an improved value, which includes the value of everything built on it. Vacant land that is not connected to water, sewer, and power services will have a lower value.
What Is the Mill Rate?
A mill is 1/1000th of a cent or 1/1000th of the total value of a property. If the county charges a "levy" of "one mill," that means they charge 1/1000th of the value of the property. A higher mill rate means you have to pay a higher percentage of your property's value as land taxes.
More than one government body might tax your property, and you have to pay all of the different taxes, which are called levies. For example, the school district, the country, and the city might charge taxes separately.
Different Methods to Determine a Property's Value
For land with a home on it, assessors might look at the value of nearby homes, look at how much it would cost to replace your home, and look at how much you could earn from renting it, minus the costs.
For vacant land, they use different methods - how easy would it be to develop the land and make a profit from it? What would a developer use the land for, if anything? If the government decides that your land wouldn't necessarily be used for anything profitable, your property taxes will be lower.
How much of your home's value can be taxed is different in different places. In some tax jurisdictions, they can only tax you on a percentage of your home's value.
How Often Do You Have to Pay Property Taxes?
If you are paying off a home, property taxes might be included in the mortgage and deducted from the total amount you pay. Otherwise, including with vacant land, you will pay yearly or quarterly. You might have to think ahead and put money aside to have enough to pay your property taxes at the end of the year.
Is There Any Way to Legally Challenge Your Property Taxes?
Sometimes, assessors might decide your property is worth an unfair and unrealistic amount of money, leading to high property taxes. You might be able to take this to court and win.
You can look at the work the assessor did and look for mistakes. If the assessor made a mistake, they are legally required to correct it.
Even if the assessor didn't make any obvious errors, you might still be able to get your taxes lowered in court. You could file a tax appeal if you believe your taxes are far from normal.
Are There Any Other Ways to Lower Your Taxes?
Again, there are lots of ways for people to avoid paying taxes that they don't take advantage of. There are tax exemptions for veterans, seniors, agricultural properties, and people with disabilities.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down because of COVID-19. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling