What’s the Best Way to Limit Property Tax Bill Increases? | TaxEDU Explainers

Property taxes are the main source of revenue for local governments.

They fund taxpayer services like roads, schools, and fire departments.

When property values increase rapidly or by a significant amount, homeowners can end up paying much higher taxes without much change in the services they receive in return.

Most states place limits on property tax increases to help keep taxes from rising too rapidly.
Assessment limits and levy limits are two common tools policymakers use to constrain property tax growth.

Assessment limits place an artificial cap on how much the assessed value of a home can increase annually. Assessment limits typically reset when a home is sold or transferred, and renovations also reset to market value when added.

Assessment limits result in unequal tax burdens that hurt younger and lower-income home buyers, and discourage selling or improving houses, or building new ones.

Levy limits are a better alternative. They cap how much more a local government can collect in property tax revenue from existing properties each year. New construction, which creates new expenses, is outside the cap, and the limits are subject to voter override if the government needs more revenue.

If soaring property values mean property tax revenue will exceed the levy limit, the government must lower the tax rate to prevent the overage, keeping tax bills in check.

Levy limits are a more effective policy to address property tax burdens.

They protect against unlegislated tax increases while keeping tax burdens better aligned with property tax values and without penalizing homeowners for improving or selling their homes.

Learn more with TaxEDU: https://taxfoundation.org/taxedu/videos/property-tax-bill-increases/

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