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Property Tax 101: What Alabama’s New Property Tax Cap Means for Homeowners
Beginning October 1st, home and property owners across Alabama will avoid unexpected and dramatic property tax increases thanks to the successful legislative e orts of the Alabama Association of REALTORS® and its partners in the property tax coalition.
Property taxes have skyrocketed in the past ve years as some counties increased taxes by as much as 68%, leaving homeowners, landowners, and businesses su ering. House Bill 73 caps annual property tax assessment increases at 7% across the state, providing predictability and stability for homeowners, particularly in rapidly appreciating markets where property values —and consequently, property taxes — can rise sharply.
“While property taxes are crucial for funding essential infrastructure and public services, it’s equally important to recognize the everyday nancial burdens faced by the average homeowner,” said RaJane Johnson, broker/owner of Agency on Main in Hartselle. “Capping property tax increases at 7% strikes a balance between supporting community needs and ensuring that families are not overwhelmed by rising living costs, preserving a ordability and stability in local communities.”
Let’s Talk Property Taxes
Property taxes are a key consideration for homeowners given their direct impact on the cost of owning a home. Yet for many, understanding how these taxes are calculated and how they in uence local markets o en remains a mystery.
“Property taxes impact homeowners by adding to the overall cost of owning a home, a ecting a ordability and long-term nancial planning,” said Johnson. “Property taxes also in uence home values, as areas with higher taxes o en o er better public services, such as schools and infrastructure.”
With the recent passing of House Bill 73, it’s a timely opportunity to dissect the intricacies of property taxes.
How Property Taxes Are Calculated
Property taxes are determined based on a few key components:
• Appraised Value: Appraised value is the market value of the property, which is determined by the local county tax assessor based on property type, location and condition.
• Assessment Rate: e assessed value is typically a percentage of the market value of the home. e classi cation of the property — residential, agricultural, commercial and utility — determines the rate. Residential properties in Alabama are assessed at 10% of the appraised value.
• Millage Rate: e millage rate is the tax rate applied to the assessed value, expressed in mills (one mill equals 1/10 of a cent, or $1 per $1,000 of assessed value).Millage rates vary by county, city and school district.
Further, exemptions, such as the homestead exemption, which reduces the taxable value for primary residences, can also in uence an individual’s property tax amount.
e Impact of Local Tax Rates
Local tax rates vary signi cantly depending on the municipality or county in which a property is located. ese rates are in uenced by the budgetary needs of local governments, which use property tax revenues to fund public services such as schools, roads and emergency services. As a result, two similarly valued homes in di erent areas can have vastly di erent property tax bills.
It’s important for homeowners to be aware of local tax rates when purchasing a home. Areas with higher tax rates may o er more services, but this comes at a cost. Conversely, areas with lower tax rates may provide fewer services but could be more a ordable.
Managing Property Tax Liabilities
While property taxes are an inevitable part of homeownership, there are steps homeowners can take to manage their tax liabilities e ectively:
1. Understand Your Assessment: Review your property’s assessment notice to ensure that the assessed value accurately re ects the market value of your home. If you believe the assessed value is too high, you have the right to appeal the assessment.
2. Utilize Exemptions and Deductions: In addition to the homestead exemption, there are other exemptions homeowners can apply for to reduce the taxable value of their primary residence. Seniors, veterans or those with disabilities in particular may qualify for additional exemptions.
3. Stay Informed and Budget Accordingly: Staying informed about local millage rate changes and managing your budget appropriately can minimize nancial surprises.
Recent Fed Rate Cut Brings Positive News as Alabama’s Housing Market Cools but Remains Strong
Montgomery, Ala. – (September 20, 2024) – According to the August 2024 Alabama Economic and Real Estate Report released on Friday by the Alabama Association of REALTORS®, the state’s housing market showed signs of cooling in August, but remains robust, especially with recent economic developments.
A key highlight for potential buyers and sellers is the Federal Reserve’s recent decision to cut the fed funds rate by 50 basis points at its September meeting, signaling further decreases in mortgage rates and improved a ordability.
“We believe the recent rate cut by the Federal Reserve is the rst big step in a continuing decline in mortgage rates,” said Jeremy Walker, CEO of Alabama REALTORS®. “Lower rates mean more a ordable monthly payments, bringing homeownership within reach for those who may have been on the sidelines due to the high mortgage rate environment of the past year.”
In August, 5,974 homes were sold, recording a year-over-year increase of 39 sales, but a 2.6% decrease month-over-month, marking the rst month of declining sales since January. Sold dollar volume totaled $1.49 billion in August, up 6.41% year-over-year, but down 1.3% from the prior month.
“As the traditional summer home-buying season comes to an end, so does the six-month streak of increasing home sales in Alabama,” said Senia Johnson, 2024 President of Alabama REALTORS®. “Even though di erent seasons bring di ering levels of housing market activity, the rate reduction announcement should help buoy home sales.”
Alabama’s median sales price continued to rise, reaching $235,575 in August — an increase of 1.5% year-over-year and 1.0% month-overmonth. is marks the highest median price since August 2022.
Meanwhile, active listings increased for the seventh consecutive month, reaching 18,136 listings, the highest gure recorded in over four and a half years. Coupled with 4.1 months of available supply, Alabama’s current market o ers ample inventory for buyers.
Average 30-year mortgage rates fell by 38 basis points in August, ending the month at 6.35%. As of September 19, rates have dropped further to a new record low of 6.09%, creating even more favorable conditions for buyers and sellers.
e Alabama Economic and Real Estate Report is published monthly and annually by the Alabama Association of REALTORS®.
About Alabama REALTORS®
e Alabama Association of REALTORS® (AAR) is the largest statewide organization of real estate professionals comprised of over 19,000 members from 23 boards and 1,200 real estate companies. United by adherence to a Code of Ethics, our members work as real estate professionals in the sale, lease, appraisal, management and development of residential, commercial, rural and resort properties throughout Alabama.
e goal of AAR’s Economic and Real Estate Report is to produce timely, data driven economic and market analysis, authoritative business intelligence to serve members, and inform consumers, policymakers and the media in a professional and accessible manner.
