Arizona is a phenomenal place to purchase a home. Sure, depending on the exact location, things can get a bit hot, but there are certainly ways to deal with that to ensure that you have as comfortable an experience as possible while you're there.
While buying a house can be significant for your portfolio, as a property manager, landlord, investor, or any other such person, it's a good idea to understand how property taxes work and their implications since you want to remain in compliance legally.
For example, do you know when you're required to pay your taxes? What does the calculation equation look like? What can you do to reduce your property taxes?
Thankfully, we've decided to create this comprehensive guide to walk you through all the essential elements since we want to prepare you as much as possible to be able to navigate the world of Arizona property taxation.
Understanding Arizona Property Tax Rates
In Arizona, property tax rates are going to vary based on a few essential factors. These can be school districts, your city, county, being in special districts, and so on.
Essentially, there are primary tax rates and secondary tax rates.
The primary tax rates are responsible for funding federal entities including school districts and municipalities, with the secondary ones being responsible for the funding of major project bond issues and special districts. You'll find that the primary rates are responsible for the majority of the tax rates you'll see in the state.
Taxing authorities will look at their tax base and funding needs each year to determine the tax rates to be used. Therefore, you'll find that rates will be adjusted annually. Note, however, that if the home is owner-occupied, the limited property value will be used and the total primary tax rate between the districts will be 1% of that figure.
Should your total rate exceed whatever that amount may be, school district taxes will see a reduction, and the state will take care of the difference.
If you are a homeowner with a tax rate lower than that 1% limit, you will receive a benefit from the state for living in your house. These cases will see owner-occupied residences getting a 50% homeowner rebate of school taxes, which has a cap of $600 annually. With this and the 1% cap alluded to before, you'll find that property taxes in Arizona tend to be kept on the low side.
How Many Times Do You Pay Property Tax a Year in Arizona?
Arizona property taxes tend to be billed in two equal installments.
October 1 is when the first half is due, becoming delinquent following November 1 of the same year, meaning you have a month to pay.
The other half becomes due on March 1 of the next year, becoming delinquent following May 1, which gives you two months.
Note that real property will be valued annually, with taxes being assessed the next year. Personal property, however, will see assessment and valuation happening in the same year.
Consequences of Late Payments
Different states will impose different processes to ensure that delinquent taxes are collected. Some states are what are known as tax deeds states.
When it comes to Arizona property taxes, taxing authorities will sell the home if the debt isn't paid. Be that as it may, whoever chooses to purchase the home may not be able to get the tax deed immediately.
In these cases, a redemption period will need to expire before the deed is received by the said purchaser.
On the other hand, there are tax lien states. In these places, the taxing authority will instead have a tax lien sale, with the buyer foreclosing or using different methods to get a property deed. Arizona falls on the tax lien side of the fence.
Tax lien sales will be held every February, with the winning bidder not getting the property title at that time. However, the purchaser will get tax lien ownership, which allows for the right to collect whatever tax debt may be applicable.
To win such a bid, the person must be the one who pays the total of interest, penalties, charges due on the property, and delinquent taxes. Additionally, this party will offer the lowest debt interest are.
Note that this is not necessarily the case for every tax lien state as there are some in which the winning bidder will be the one who offers the highest amount for the lien.
Without the amount of the lien and interest being paid off, the purchaser is allowed to foreclose the said lien, and this will yield ownership of the property.
Note that if no one should bid for the lien in Arizona, the state will be assigned the lien by the county treasurer. When this happens, the state is then allowed to apply to the country treasurer for the home title if the debt is not paid off.
How to Pay a Property Tax Bill in Arizona
How to pay your Arizona property taxes comes down to what makes you the most comfortable.
If you wish, you can pay your property taxes by mail to the county treasurer, depending on which county your property is located in.
Alternatively, if you find it more convenient, you can pay your tax bill for Arizona property taxes electronically.
Note, however, that for mortgaged properties, property taxes will be paid by whichever party is the mortgage holder.
How Much Is Property Tax in Arizona?
How much your Arizona property taxes are depends on the assessed value of real property in the state. It's a process that goes through a few important steps.
First, there's the property valuation, which includes the following:
- The full cash value of the property, which is also known as the market value, will be determined by the county assessor's office.
- This figure is determined using different elements including market trends, property attributes, and recent sales.
- There is then the assessed value, which will be a percentage of the full cash value. This is used purely for taxation purposes. Arizona typically has the assessed value at 15% for commercial properties, with residential properties standing at 10%.
The next element for calculating Arizona property taxes is the tax calculation segment.
The tax rate will be multiplied by the assessed value. This is set by school districts, counties, and other applicable taxing authorities.
Note that deductions and exemptions (covered later) will also be factored into the equation here for your property taxes. Additionally, if you feel that the assessed value of your property is inaccurate, you are allowed to appeal the decision, which will go through an informal and formal review segment.
If you're wondering about the median property tax in Arizona, the typical Arizona homeowner pays about $1,707 in property taxes every year. This is much lower than median property taxes in other states based on national averages.
How Can I Lower My Property Tax in Arizona
Obviously, the property tax burden can be quite a heavy one to carry, which may leave you wondering what you can do to alleviate it.
Thankfully, there are steps you can take legally to have your property taxes reduced, one of which is the appeal process that was briefly outlined above.
Look into Disaster Relief
No one knows when a disaster can strike, and it could be a catastrophe for you as a property owner.
If your home has been damaged or destroyed by a disaster, there may be some level of property tax relief that you can get access to, particularly if there's a state of emergency that has been declared.
Investigate Other Exemptions and Tax Relief Programs
Depending on your state, you'll often find that there are tax relief programs available that can also lighten the amount of property tax dollars you'll need to find. Let's take a look at a few of the most notable ones in Arizona.
Widow/Widower, Persons with Total and Permanent Disability, and Veterans with Disability Exemption
Effectively, this form of relief will yield a lower assessed value when there is individual ownership of real estate, automobiles, or mobile homes. As the name implies, eligible parties include widows, widowers, veterans with disability exemption, and persons who have permanent and total disability. Each category has its own sets of qualifying requirements such as disability certifications or being an Arizona resident.
Senior Value Protection Option AKA Senior Value Freeze
This option will freeze the property's limited value and will do so for three years. Those who qualify will not see frozen taxes, which means that they will be charged at the same rate as other properties in the same district. With the three-year period elapsing, reapplication must take place if beneficiaries want to continue to receive the benefits of the program.
Religious/Non-profit Organization Exemptions
Finally, there is the religious exemption. Note that Arizona Revised Statuses state that all property in the state must be subject to taxation except ones that are specifically listed. Thankfully, some non-profit and religious organizations are indeed listed. This will require proof to the assessor of exemption status, which can be done with a letter from the revenue department or a 501C(3).
This process must be done annually.
While opening property in Arizona can be a blessing, you must understand taxation to navigate the landscape properly. Thankfully, you now have all the information you need from calculation to reduction, to exemption, and more!
If you're looking for more tips on property management accounting, check out our whitepaper on the best tips for simplifying this complex process.