When Do You Start Paying Property Taxes on a New Home?

Of all the costs that you have to consider when buying (or building) a new home, property taxes are often one of the most difficult to comprehend. It can be tough to figure out what you’ll owe and when you’ll owe it, and if you’re a first time homeowner, you might not even be sure how you pay property taxes in the first place. But regardless of whether you’re in the know or not, eventually you will have to start paying property taxes on a new home, so it helps to know what you’re getting into.

Below, we’ll go over the basics of property taxes and when you have to start paying them, with some additional information that’s helpful for new homeowners to know.

Property Tax Basics

Property taxes, sometimes referred to as a millage rate or a mill tax, is a tax that you pay on real estate and other distinct types of property. The amount that you owe each year depends on the assessed value of your property, including your house itself and the land that it sits on. Local governments rely heavily on property taxes to fund important projects like road improvements and maintenance, law enforcement and fire department services, schools, and other public services.

Property taxes are determined by individual counties and municipalities, and vary widely across the country. Some states have notoriously high property tax rates (New Jersey, Illinois, and New Hampshire are all up there), while other states are known for their low property tax rates (Louisiana, Hawaii, and Alabama, for example). Your realtor will be able to let you know what the millage rate is on a home even before you buy it, though note that these rates can—and often do—change every few years.

When Do You Start Paying Property Taxes on a New Home?

When you start paying property taxes on a new home is largely the same regardless of whether you move into a previously owned home or a new construction home—with one important caveat.

Here’s how it works: at closing, you will be required to put into escrow your first year or so (generally around 12 to 13 months) of property taxes. That’s because in most cases it is your mortgage lender who takes care of paying out your property taxes, either from funds collected in escrow or from your monthly mortgage payment.

Property taxes are usually paid twice a year—generally March 1 and September 1—and are paid in advance. So the payment you make March 1 pays for March through August, while the payment you make September 1 pays for September through February.

If you’ve bought a previously owned home, you will only be responsible for the taxes on the property during the time of year that you’ll be living in the house. If you move in to the new house in October then, you will reimburse the seller at closing for the pro-rated portion of the property tax they already paid for October through February. After that, you’ll be on the same set schedule that the previous owner was on.

Now here’s where it’s a little bit different if you’re moving into new construction. When paying property taxes on a new home that you’ve had custom built, you’ll still pay your first year’s worth at closing but chances are they’ll be lower the first year than they will be moving forward. That’s because until your county has had a chance to send out an assessor to value your home and log that value with the local government, your property tax rate is based on unimproved land—meaning the value of the land before a house was there. Later, your property will be revalued as improved land, meaning your land plus your house. Understandably, that will mean a higher property tax bill.

Lenders have two different ways of working with buyers of new construction when it comes to their property taxes. They may have you pay the assumed rate on your improved property, meaning you’ll set aside more than you’ll actually owe for the year into escrow and will either get money back or will have money left over to allocate toward future payments. Alternately, they may have you pay the current millage tax rate, in which case you’ll eventually end up with a bill for additional money owed when your home is assessed at its full value.

How to Calculate Your Property Taxes

If you’re curious about what you can expect when it comes to paying property taxes on a new home, then you could use a property tax calculator to come up with an estimate of what your yearly cost might be. Property tax calculators take into account the state and county you live in as well as the value of your property.

Note that your assessed value isn’t just based on the purchase price of your home. County assessors do their own valuations and may come up with a number lower or higher than what you paid. If you think they missed the mark when you do get your assessment, you can appeal it. For the purposes of estimating property taxes though, just use the purchase price of your home.

Things do get a little bit trickier if you’re trying to calculate what you’ll be paying in property taxes on a new build. That’s because it’s not just your lot itself that improves as land gets developed—it’s the entire area around you, and that increases the value of your property as well. If you’re moving into a new development, you may see your property taxes increase pretty regularly while your neighborhood gets more and more improved.

Do You Qualify for a Property Tax Exemption?

Some municipalities offer lower property tax rates for specifics groups of people, including seniors, veterans, and people using their land for certain purposes (such as agriculture). Talk to your realtor and/or local taxing authority to see if you might qualify for a rate exemption in your area. If so, they’ll be able to provide guidance on what you’ll need to do in order to prove your eligibility and get approved for a lower tax rate.