Property Taxes—What You Need To Know
When purchasing Real Estate, many people know what price range they are comfortable purchasing in based on their mortgage payments. However, it is important to think about property tax as well. These taxes are usually in the thousands per year which can add hundreds of dollars to your monthly payments—it is important to consider this added expense before purchasing a property.
What are property taxes?
Property taxes are taxes paid to the municipality your property is located in. These taxes provide maintenance and services to the community. Each municipality is different and provides different services so the taxes charged can vary dramatically. Although not many people particularly enjoy paying taxes, they do provide us with many things that make our day-to-day lives easier such as snow removal from municipal roads, road repair, community centres, plus much more.
How are property taxes determined?
Municipalities set their tax rate by adding up all of the assessed values of the properties and comparing it to their budget for providing services to the municipality. Once the tax rate is determined, your property’s assessed value is multiplied by the tax rate to give you your property tax amount.
Your property is assessed by the Municipal Property Assessment Corporation (MPAC) every four years to determine the value of your home for taxation purposes. This assessment can vary drastically from the market value assessment of your home. The last MPAC assessment was done in 2016 and the next will take place in 2020. MPAC values your home based on many factors including, but not limited to:
- Square Footage
- Lot Size
- Primary Structures
- Secondary Structures
- Easements, Restrictions, or Encumbrances
MPAC also uses three main approaches to determine the value of your property including:
- Direct Comparison Approach: Recent sales of comparable properties are used to help determine and appropriate valuation of your property
- Income Approach: If your property has the potential to generate income this can hav a significant impact on the value of the property
- Cost Approach: When the property is unique and the Direct Comparison and Income Approaches don’t work, MPAC will estimate the cost to replace the buildings, then deduct an amount for the depreciation of said buildings, and finally add the market value of the land to determine the value of your property
What You Need To Be Aware Of
If you are using a Realtor to purchase a home, then chances are they will be able to tell you what the taxes are for any property you are interested in. However, the Buyer’s lawyer will confirm the taxes before closing as well as address any adjustments that might need to be made (depending on what the seller had paid in taxes prior to the sale). If you are concerned that the assessed value of your house will increase dramatically in the 2020 assessment, keep in mind that MPAC phases in these increases over four years so you are not stuck with a large increase upfront. On the other hand, if your assessed value decreases the change is effective immediately.
If you have any unanswered questions about taxes or Real Estate feel free to reach out to me:
- Email: firstname.lastname@example.org
- Phone: 226-377-2093