Thinking of buying a home in New Jersey but not sure how to figure out your property taxes? You’re not alone. Taxes anywhere can be a mystery but for some reason they seem extra complicated in the Garden State.
Town Hopper Tours recently spoke with David Wolfe, an attorney at Skoloff & Wolfe, P.C., one of New Jersey’s best-known law firms focusing on complex property, real estate, matrimonial, trusts and estates, and litigation matters. Wolfe, who was appointed by the Supreme Court of New Jersey to serve as a member of its Committee on the Tax Court, and has served as the co-Chair of the Real Property Tax Practice and Procedure Committee of the New Jersey State Bar Association since 2004, also serves on the Board of the National Association of Property Tax Attorneys.
Wolfe says the tax rates vary dramatically by town in New Jersey, simply because they’re a function of local government and county government, and the biggest expense is typically school expenses within each town.
“Maplewood would be around $3.60 versus Millburn would be around $2.10, so there can be a big spread,” explains Wolfe. “South Orange is all the way up around $3.70 per $100,000 of assessment, so obviously the first place to start is the tax rate.” To look up the general tax rate for a particular town in Essex County, click here (To look up the tax rate for a town in another county, click here, then choose your county and select your town).
“In addition, New Jersey municipalities are required to assess at 100% of the value, and since municipalities are only theoretically at 100% in the year in which they perform the municipal-wide revaluation or reassessment, the further you get away from a revaluation and reassessment, the further you can be from that 100% value,” Wolfe explains. “So what you need to know is what the average ratio or chapter 123 ratio is in whatever municipality you’re looking at in order to understand your assessment.”
So, what does that mean to us non-tax pros? It basically means you need to have two important pieces of information to calculate your taxes:
- The chapter 123 ratio for your town
- The general tax rate for your town
Let’s say you’re considering a home in South Orange and in 2016 it’s being assessed at 85% of the value, that would imply is that if you had a property that was assessed at $1 million you’d be paying taxes as though that property was worth $1,172,000. “The Division of Taxation publishes by county each of the common level ranges, or the average ratio, that you need to know for every municipality. In order to understand whether or you’d be over-assessed, or properly assessed, or under-assessed, you need to know both your assessed value and those ratios because without those ratios you have no way of knowing what the implied value of your assessment is. In some counties, ratios can be as low as in the 20% range so those assessments don’t really mean anything. What you desperately need to know is the ratios and there’s a big difference between 85% and 100%,” says Wolfe.
So, say you decide to go with a $500,000 for a home in South Orange instead, multiply that sales price by the average ratio (which we know from the chapter 123 ratio is 85.28… so we move the decimal point over twice to get 0.8528) you’d be entitled in theory to an assessment of $426,400. If you could prove that the assessment was indicative of fair market value, and the value of your property succeeded in proving that was the value of your property, the law would say you’re entitled to an assessment of $426,400, explains Wolfe. Now to calculate your actual taxes you’ll have to multiply this new amount of $426,400 by the tax rate (which we know from the general tax rate for 2016 is 3.739… so we move the decimal point over twice to get 0.03739) and we reach an estimated tax bill of $15,943.096.
In other words, the formula to calculate what your taxes looks like this:
Multiply the Chapter 123 Ratio by the home purchase price to reach the Assessed Value.
Then multiply the Assessed Value by the General Tax Rate to calculate what your taxes are likely to be.
“The one thing that’s very important for home owners to do when they’re looking at any particular municipality is to find out if the town is looking at performing a municipal revaluation and if all of the assessments are about to change,” stresses Wolfe. “That’s’ certainly something that I would want to know.”
For example, Millburn township assess at 86% this year but for 2017 they’re going to be at 100% because every assessment in that municipality is going to be redone, revalued, and brought to 100%, he explains. The Essex County Board of Taxation is a good place to call to find out if a particular municipality will be revaluing for the coming year. The site also features a free guide to property taxes in New Jersey and has additional information on what the process is like.
While Wolfe does not counsel on permits, in regard to home improvement projects he does say that obtaining a permit and closing out a permit for a home renovation can trigger an analysis by an assessor as to whether on not an increase in the assessment is warranted. “If a property is under-assessed, certainly there can be a significant increase from only a modest improvement,” says Wolfe. “The job of the assessor is to value the property as a whole, not just the increase in value attributed to the new improvement. So if you add a deck, it’s not that they just value how much is the deck is worth. They’re supposed to value the entire property and then look at the difference between the current assessment and the new assessment with the deck.”
Sure, there’s a chance that if your property is already over-assessed, an assessor will not add anything, even though you’ve done an improvement but that’s rare. “It’s certainly the norm that improving your property leads to increasing the assessment.”
Separately, keep in mind – especially if you’re renting an apartment in New York City and making the switch to home ownership in New Jersey – that what’s covered in the general tax rate can vary from municipality to municipality. This means that in some towns garbage collection and sewer costs may be separate out-of-pocket expenses; in addition to your water bill. To find out what might be an additional expense for you, call or visit your local municipality’s tax collector website. Also note that in some counties and municipalities there may be additional taxes to pay depending on your neighborhood.
If you buy a home in New Jersey and feel your taxes are too high. You can appeal them. That’s where someone like David Wolfe would come in. “The best way that I can help is to help them figure out if they have a meritorious tax appeal, and if so file an appeal on their behalf.”
Wolfe says in New Jersey, unlike in New York, “you appeal at your peril so you should not just automatically appeal your taxes because you don’t want to pay $15,000 or $20,000 or whatever it is. You need to have a merit to your case otherwise you risk potentially having an increase in your taxes as a result to the appeal,” which is why it’s important to screen your case with a tax attorney first.
“When you have a recent purchase price for a single family home that’s typically the best indication of the value of that property, unless you’re looking at a distressed sale, foreclosure, or short sale,” he adds.
As for what’s the most important takeaway in regard to taxes – find out the current year’s assessments.
“Frequently on real estate listings they have the prior year’s property tax assessment and taxes, and there can be great variations from one year to the next, especially if there has been a revaluation and the property or the home has been on the market for some time, so it’s vital that you know the latest year the current year’s assessment,” says Wolfe.
it’s also crucial that you know if it’s a town in which there is an ongoing revaluation, which some of these municipalities in Essex County are undergoing,” he says, pointing at South Orange and Maplewood. Wolfe suggests you ask the municipality if the homeowner is allowed access to the revaluation firm and whether or not they’ve received notice of what their potential assessment is going to be for the following year.
For additional articles with New Jersey tax information, check out the publications page at Skoloff & Wolfe: http://www.skoloffwolfe.com/Publications.html
Alphabetical list of resources in this blog post:
Chapter 123 Ratio
David Wolfe - Skoloff & Wolfe, P.C.
Essex County Board of Taxation
Essex County Board of Taxation - free guide to New Jersey property taxes
General Tax Rates - Essex County
Tax Rates by Municipality in New Jersey