With property taxes rising, here's what to tell clients

The continuing surge in property taxes is gobbling up a larger share of homeowners' budgets — highlighting the importance for financial advisors to raise the topic with clients.

In their enthusiasm for buying a home or another large asset (or in the rush of the last few years to move to states with lower or zero income taxes), clients may forget that their property taxes will be a permanent part of the equation, according to financial planner Amy Irvine, the founder of Corning, New York-based Rooted Planning Group. 

There are several important considerations, Irvine pointed out in an interview. For example, high-growth areas of the country will need tax revenue to bulk up infrastructure such as local schools, some clients may be eligible for relief programs benefiting veterans or seniors, and those in states with the biggest property duties may deduct only up to $10,000 under a provision of the 2017 Tax Cuts and Jobs Act that is set to expire at the end of next year.

"People look at the price of the house and what that cost is, but they don't always look at the underlying property taxes," Irvine said. "The house will be paid off at some point in time. The property tax won't."

READ MORE: 20 states that burden taxpayers the least

The 12-month total for state and local property tax revenue jumped 9% year over year to $766.7 billion in the first quarter of 2024, according to data from the National Association of Home Builders tracked by FP sister publication National Mortgage News. That rate of increase was more than double the average of the past dozen years. And property taxes were already growing quickly. Between 2019 and 2023, the national median level of property taxes soared by 24% to $2,826, property data firm CoreLogic found in a study earlier this year.

"As U.S. home prices have continued to rise and reach record highs, millions of owners are feeling the pinch from soaring property taxes," CoreLogic Principal Economist Yanling Mayer wrote in the study. "In particular, the 2023 property-tax assessment cycle followed major home price gains during the pandemic. The U.S. housing market recorded a nearly 40% price increase between 2019 and 2022, making it one of the hottest in history. Property taxes are based on a home's assessed value and can vary from state to state or by county or municipality. But almost invariably, property taxes typically increase over time as values rise."

READ MORE: The pros and cons of cost segregation for retired property owners

Irvine's team works with many clients who pay high property taxes as residents of New York, California and Connecticut, so they discuss the impact on the customers' financial plan as part of the advisory practice's onboarding process, she noted. 

To forecast the expense line in future years, the firm then "can do some investigation" through county websites that share an area's annual rate increases and provide a historical glimpse into an individual property's assessment. Some homeowners may also qualify for breaks on their property value or tax based on military service, programs designed to help seniors or a "homestead exemption" for certain taxpayers, depending on the geographic area, age, loss of their spouse or being a person with a disability.

"We look at stuff like that to see if people qualify and if they're leaving some money on the table by not enrolling in those programs," Irvine said, noting that capital gains could also pose an impact on the discount. "That may cause them to lose a reduction of their property taxes by not paying attention to those kinds of things."