Tennessee is famous for its world-renowned music scene, stunning natural beauty, comfort foods, and high-quality whiskey.
Millions of people visit the so-called land of country music each year to enjoy its rich history, multiple sightseeing opportunities, and unforgettable culture.
However, landlords, real estate investors, and property managers are interested in many other things. Besides being attractive and fun, is The Volunteer State a good place to buy a home?
When it comes to investing in real estate, property taxes play a key role. Scrutinizing tax laws and understanding what may impact your bills is an important part of owning property, as these factors can affect your finances.
Fortunately, you can find all the information you need here! We've created a comprehensive guide on property taxes in Tennessee to help you understand your obligations if you live in this state.
Understanding Different Types of Property Tax Bills in Tennessee
These taxes require property owners to pay an amount based on the value of their land, buildings, or tangible and intangible assets.
In addition, property taxes are the primary source of revenue for local government units, such as counties and municipalities.
According to Article II, Section 28 of the Tennessee Constitution, these governing bodies are authorized to levy taxes on all types of property, including real, personal, and mixed property.
Since these taxes are "ad valorem," the amounts are based on the value of the property. Local government units must assess properties for taxation for state, county, and municipal purposes unless the land, building, or item is declared exempt.
The General Assembly authorizes counties and municipalities to levy taxes on the following types of property:
- Real property
- Tangible personal property
- Intangible personal property
- Public utility property
How Many Times Do You Pay Property Taxes a Year in Tennessee?
In Tennessee, property taxes aren't collected by the Department of Revenue but by county assessors. They're due on the first Monday of October.
Property owners are required to pay taxes in full before the last day of February of the following year. Otherwise, they become delinquent.
It's essential to pay your tax bills on time. Delinquent property taxes accrue interest and may be subject to penalties.
Consequences of Late Payments
If you don't pay your Tennessee property taxes on time, you may face the following consequences:
Interest and Other Financial Penalties
Late property tax payments accrue interest at a rate of 1.5% per month or 8% annually. These charges are added to your base tax amount on the first day of each month beginning March 1.
In addition, delinquent property taxes may be subject to penalties or additional fees according to the rules set by each county or local governing body.
Tennessee has laws that allow local government units to hold a tax sale to sell properties with delinquent taxes and recover the amount they're owed.
Most statutory sale provisions vary depending on the form of government or the size of the county. However, the process is similar.
It typically involves filing a lawsuit in court and selling the property at a public auction to satisfy the tax lien. The county is the only governing body authorized to do this.
However, the bidder who offers the highest payment and purchases the property at the tax sale doesn't earn ownership right away. Property owners have some time to pay overdue tax amounts to recover their assets. This is known as the "redemption period."
This period is typically one year but can vary as follows:
- 180-day redemption period if taxes are more than five years overdue
- 90-day redemption period if taxes are eight or more years overdue
- 30-day redemption period if the property is abandoned or vacant
Once the redemption period ends, you can lose your property if you don't catch up on your property taxes.
How to Pay a Property Tax Bill in Tennessee
Payment options vary from county to county, as they depend on what the local tax assessor allows.
However, most Tennessee property owners can pay their property tax bill in person, online, or by mail.
Also, some counties accept partial payments under certain circumstances. If you need more information on payment options and methods, contact the county trustee's office.
How Much is Property Tax in Tennessee?
Tennessee has low property taxes compared to other states, with a median annual payment of just $1.220. However, these amounts may vary according to the following elements.
As mentioned, property taxes are based on the property value, which is determined by the county assessor through regular reappraisal.
This process occurs every four, five, or six years to determine the appraised value, which must be equal to the current market value.
However, taxes aren't applied to the appraised value but to the assessed value. Here's the assessment ratio for each type of taxable property:
- Residential property: 25%
- Farm property: 25%
- Commercial and industrial property: 40%
- Public utility property: 55%
- Business personal property: 30%
Local Property Tax Rates
Under Tennessee law, the county commission and municipal governments set property tax rates, which are based on the following:
- The services provided by the local government
- The value of the county's tax base
In Davison County, there are two primary tax rate districts, for example. These are the General Services District (GSD) and the Urban Services District (USD).
Both districts set tax rates based on the amount of money needed to fund provided services. However, the State Board of Equalization must certify them.
How is Property Tax Calculated in Tennessee?
To calculate your property taxes in Tennessee, you should do the following:
- Multiply the appraised value by the assessment ratio according to your property type. This results in the assessed value.
- Multiply the assessed value by the tax rate. This will give you the amount of your tax bill for that specific property.
How Can I Lower My Property Taxes in Tennessee?
There are legitimate ways to lower your property taxes in this state. Let's go over each one!
You can appeal your property assessment value if you think it's incorrect or too high.
In this case, you can file a petition for reassessment with the local county assessor's office within 30 days of receiving your property tax assessment notice.
If the county assessor's office denies your appeal, you can file another appeal with the Tennessee Board of Equalization.
Tennessee offers a few programs to help taxpayers ease their financial burden. These are:
- Property Tax Relief Program: Eligible homeowners, especially low-income elderly and disabled individuals, can get a tax break for their properties. Although it doesn't exempt them from paying taxes, it reimburses some or all of the tax bill.
- Property Tax Freeze: This program has been designed for taxpayers aged 65 and older but isn't available in all counties and municipalities. It freezes the tax base in the base year, so the tax amount won't change as long as homeowners meet eligibility requirements.
The Tennessee General Assembly also authorizes exemptions on certain properties if used for the following:
- Religious activities
- Scientific purposes
- Charitable organizations
- Literary organizations
- Non-profit purposes
However, exemptions aren't automatic. Instead, organizations must apply and be approved by the Board of Equalization.
Important Propositions for Real Estate Investors in Tennessee
Currently, there are no voter-approved propositions that influence property taxes in Tennessee. However, a recent proposal seeks to create the Golden Homeowners Tax Relief program to help all senior property owners who don't qualify for existing programs.
Property taxes are the backbone of local governments, as they provide funds for services, infrastructure, and projects.
Since the money goes to your area's maintenance, schools, security efforts, and other services, you can benefit from property taxes.
However, you need a well-thought-out and effective tax strategy to prevent high bills from affecting your financial situation.
Luckily, this guide can help you understand your tax obligations to keep up with your payments, lower your bills, and avoid financial issues.