Lawmakers Talk Property-Tax Cuts
As Family Fears More Rate Hikes

This week New Jersey lawmakers have been making noise about cutting property taxes. And it's about time, since homeowners in my state pay the highest property taxes in the nation.

Lawmakers are considering a bill that would lower property taxes for most New Jersey homeowners by as much as 20% and cap annual property-tax increases.

We're not getting too excited, though: It's more likely that our property taxes are going to rise rather than fall in the coming years -- tax break or not. We were notified this month that our home is being reassessed as a part of a townwide revaluation. That's left me trying to estimate what our new home assessment might be, factor in the proposed tax break, and figure out the effect on our future tax bills.

First, let's look at the tax breaks. Today we get a $200 tax-rebate check under New Jersey's FAIR Rebate program. (Checks for senior citizens and homeowners with lower incomes can be as high as $1,200.)

Under one proposed plan, the FAIR program would go away and property-tax credits would be offered based on income. Households earning between $150,000 and $250,000 (like ours) would get a 10% reduction. Households with incomes of between $100,000 and $150,000 would get a 15% break, and households with incomes of $100,000 or less would get a 20% tax break. (Households with income over $250,000 would get nothing.)

The bill would also cap annual property-tax increases at 4%, whereas currently they average about 7%. (There are provisions that would allow higher increases if residents voted to approved them.)

Under the new plan, our property taxes would be reduced by about $623, which would come in the form of a credit on our tax bill. That's nowhere near bringing us in line with what homeowners in other states pay in property taxes, but it's better than getting back just $200. And we both like the idea of capping tax increases, along with the right to vote on more substantial tax hikes.

Last year my husband Gerry and I paid $6,226 in taxes on our 2,400-square-foot, three-bedroom, one-and-a-half-bath home. For the last five years, our taxes have risen an average of $200 a year, and so I'll assume we'll be looking at another $200 increase when our town resets its rate in July. That's about average for our state: New Jersey collected $2,099 per capita in property taxes in 2004, according to the most-recent figures available from the Tax Foundation, a research group. (See where your state ranked here.) Combine that likely increase with the proposed tax relief, and our taxes would wind up going down about $200.

Still, these cuts are merely proposals -- it remains to be seen how much, if any, tax relief lawmakers can provide. And even if the New Jersey measure is passed and we do get a $623 credit this year, it's very likely Gerry and I -- and countless other homeowners in New Jersey -- will see our property taxes jump soon.

Here's why.

Today our home is assessed at $168,100 -- a figure derived from 1991, the last time our town performed a revaluation. Since then, we've seen an unprecedented run-up in home values and made some upgrades to our home. (To be fair, these projects would have resulted in an assessment anyway.)

We purchased our home from my father-in-law for $190,000 in 2000; according to the National Association of Realtors, the average home-sale price in our area (our county falls under New York: Edison region) was $415,100 in the third quarter of 2006.

To get an idea of our home's current market value, I turned to real-estate site Zillow.com, which offers its own fair-market-value estimate based on publicly available information. The estimate can also can be customized to reflect upgrades or wear and tear on the home.

After I plugged in the cost of the mid-range kitchen remodel, the family-room upgrade and the deck/patio addition we've completed in the last five years, Zillow gave me an estimate of $475,100, based on comparable home sales in the area. That sounded too high, given the relatively soft housing market in my town. A search for comparable homes on Realtor.com showed similar houses selling in the low- to mid-$400,000s. I called my friend Julie, a real-estate agent in our town, to get a feel for conditions on the ground; she said $439,999 would be the price she'd recommend were we to list it for sale. So let's assume, after some haggling, our home would sell for $429,999. (We're lucky in the timing of the reassessment -- as early as mid-summer last year comparable homes in my neighborhood were selling for $475,000 or more.)

New Jersey's property taxes are based on fair market values. My town's general tax rate is calculated by dividing the amount the town needs to meet budget expenses by the total assessed value of all its taxable property. Then our individual property taxes are calculated by multiplying the tax rate by the assessed value of our home. (Our town has hired an outside home-appraisal contractor to perform assessments.)

For 2006, our town's general tax rate was 3.704, or $37.04 per $1,000 in assessed value. At an assessed value of $429,999, our taxes would leap to $15,927 a year (based on the current tax rate) from $6,226, a 155% increase. Even with our lawmakers' new proposed property-tax credit, our final bill would work out to $14,330 -- still more than twice the tax we're paying now.

Give me a moment while I let these figures sink in.

OK, I'm back.

How likely is it we'll end up paying property taxes in the five figures? Hard to say. The revaluation will result in a sudden surge in our town's total assessed value of taxable property, so while our home will be assessed at a higher level, the tax rate should come down. We'll be keeping our eye on our town's budget expenses in the coming years to see if the revaluation also results in a sudden surge in spending.

Whatever happens, a jump in our property taxes will probably result in a higher whack from the alternative minimum tax. Property taxes are deductible for federal and state taxes, but the AMT lessens the tax break. The AMT was created back in 1969 to ensure wealthy taxpayers would pay at least some tax by chipping away at certain deductions, including property taxes. But the tax wasn't indexed for inflation and in the last few years it's been hitting middle-income families, particularly in high-tax states such as California, New York and New Jersey. In 2006, the AMT hit us for $1,591, up from $952 the previous year.

As much as we've been dreading the coming property-tax reassessment, we're going to make sure the new assessment is fair. With one contractor handling such a large townwide revaluation, errors are bound to happen. According to the Homebuilders Association of America, there are many ways assessments can go wrong, including faulty comparisons with other homes in the area, incorrect information about the size, amenities and condition of the home, and simple math errors. Indeed, last year some homeowners outraged by exorbitant assessments went so far as to sue the assessors.

Making sure a home is valued fairly is crucial -- not just to prevent homeowners from paying more tax than they should, but also to ensure that property taxes don't scare off potential home buyers. And the chances of winning an appeal are good. Less than 2% of property taxes are appealed, but between 75% and 90% of homeowners who do appeal are successful in lowering their tax bill, the HBA says. In a few states (though not New Jersey), homeowners who appeal are automatically granted a lower assessment.

If your home is being reassessed, check with your town's tax assessor for guidelines on how to appeal before the assessment takes place. Many towns impose time restrictions on how long you can wait to appeal, while others may require expensive documentation that could lessen any benefit you'd get from a lower estimate. You can find more information on how to appeal a property-tax assessment at the HBA's Web site.

Do you think your property taxes are fair? If not, how do you think rising property taxes should be contained? Are local governments doing enough to keep budgets in check? Write to me at fiscallyfit@wsj.com, and then come join me in a discussion about property taxes.

Email your comments to rjeditor@dowjones.com.