Property taxes suck! There’s few things that I dislike more than giving the government my money. But having an understanding of how property taxes work in South Carolina will make you a smarter home shopper or homeowner. And most people, to include many real estate agents and lenders, don’t know actually know how taxes are calculated. So keep reading to learn the secrets.
Today we’re going to talk about everyone’s favorite topic… Taxes. And just not any type of taxes, we’re going to discuss property taxes. There’s some serious misunderstanding on how they are calculated and just what goes into them here in South Carolina.
Fortunately, South Carolina ranks among the top 10 states with the lowest property taxes in the country. If you have owned a home elsewhere, it’s likely that you’re going to be shocked – in a good way – when you see your property tax bill here in South Carolina. Even so, there are three factors that affect your tax bill here. That is, your assessed value, your assessment rate, and the millage rate. As I discuss each of these factors, I’ll also give some pointers on how you can minimize your tax obligation.
Before we get to the individual factors, let’s talk about property taxes in a general sense. These taxes are levied by the local county government and are paid once a year. Your tax bill will be escrowed and so whoever is servicing your loan will try to estimate your tax bill, then divide that number by 12 so you’re paying into your escrow account an even amount each month. In January of each year your tax bill is due and is paid directly from your escrow account. Most homeowners might get a bill in the mail saying what their property taxes are, but as long as the mortgage is escrowed, which almost all of them are, they won’t have to directly pay the county.
So what are these taxes used for? Well, a good chunk are used for county operations, municipal bonds, public amenities, public schools, and individual city municipalities. More on all of that later. But the point I’m making is that taxes are paid to the county, and then from there they are disbursed to different areas to keep all parts of the local government afloat.
So the first thing your tax bill depends on is the Assessed Value of your home. The government likes to call this the Fair Market Value except they get to determine what is fair. And the county actually determines what the value of your home is by hiring an appraisal. And just like an appraisal for a normal residential purchase, a licensed appraiser will develop the value of your home based on one of the three appraisal methods. However, they are not going into your house – though I have heard stories of appraisers looking at photos on Zillow or the MLS, so be careful in that regard. Now I’m in Charleston, and there’s three major counties in our area- Berkeley, Dorchester, and Charleston County. You can also include Colleton county here if you want. In order to see what the current assessed value for any home is, just go to the county’s website and search by address. I’ll leave the links to these search engines in the description below. So when you purchase a home, you know exactly what your tax bill will be for that year.
But here’s where so many people get tripped up and what lenders and real estate agents don’t tell you, usually because they don’t know better. When the deed is transferred, i.e. you buy the house, you trip this procedure called the Assessable Transfer of Interest, or ATI for short. This means that the county is going to go reassess the home you just purchased by December 31st of that year, meaning that the following year’s tax bill will be higher. Think about it, if a home was being taxed at a fair market value of 200 thousand dollars, and then was sold for 400 thousand dollars, then you bet that the county wants to tax it at a higher rate. Its this reason, the ATI, that typically causes property taxes to rise in the second year of home ownership.
By the way, this will almost always catch your escrow company by surprise, so going into the third calendar year of home ownership, theres a good chance your monthly payment will go up, sometimes substantially depending on what property taxes used to be.
So what happens when you already own a home and your property has already been assessed after the purchase? Well, it is reassessed every fifth year. At this point, you’re pretty protected. The county cannot increase your taxes more than 15% in any 5 year period as long as you maintain ownership of the home and don’t transfer the deed.
Now there’s some other things that might affect the assessed value and might not abide by the 15% cap, such as the addition of new structures on a property or major renovations, but for the most part, this is not applicable to most homeowners. Just know that your assessed value can and usually will go up the year after you purchase a home, and then it’ll only go up by a maximum of 15% every five years after that.
I also want to touch on the homestead exemption here. If you’re 65 or older, or legally blind, or fully disabled then you can apply for a homestead exemption. This will remove the first 50 thousand in assessed value, making your taxes lower. So for instance, if your fair market value was 400 thousand dollars, then you’d only be taxed on 350 thousand.
But wait, what if you don’t agree with the county’s assessment of your home’s value? Well, you can actually dispute this with the county. There’s a lot of helpful resources out there to help you win against the county, but it’s not really the point of this video. Most homeowners don’t bother with the appeal process and as a result they potentially lose out on tax savings. Most counties usually require you to file an appeal within 90 days of receiving your new assessment notice.
Now the second factor that affects your property taxes is your assessment rate. For residential property in south carolina, there’s only two assessment rates – 6% and 4%. The 4% rate is reserved only for your primary home. Every other residential real property, from investment properties to second homes to vacant land, is taxed at a 6% rate. Now the counties are tricky and are definitely looking for your money. They will assume that every home purchase is actually an investment property, even if you’re intending to live in the property yourself. So, in order to get the 4% tax rate, you must file an application with the county! Each county has different rules and requirements, but as a rule you’ll typically need proof that you’re living in the property. So think a utility bill with your name on it, your drivers license with the new address, et cetera. There are exemptions to this for military – usually you just need a copy of your orders.
However, this 4% tax application is really easy for new homeowners to forget because you can’t file it right away. In fact, you usually have to wait a month or so for deeds to be recorded with the county before they even know that you own the place. Or in the case of Charleston county, three months.. because the Recorder of Deeds is stuck in the 18th century. I might be exaggerating, but a judge actually had to step in last year because Charleston county deeds were being recorded so slowly.
Alright so you might be asking “wow Shawn the difference between 4% and 6% doesn’t seem that much. Is it really that big of a deal?!” And the answer is a resounding YES. It actually is a huge deal, but not for the reason you might think. With the 4% property tax rate and a completed primary residence application, you are actually exempt from the school district millage rate, which usually accounts for about half of your taxes.
Which leads us into the last factor that affects your taxes – That is, the millage rate. Now I’m not going to get into the history of the mill, and what the actual conversion between a mill to a dollar is, that’s not the point of the post. But essentially the millage rate is going to be a fraction that you multiply by your tax value in order to come up with your actual property tax number. This is an incredibly convoluted process, but as a rule of thumb, assume your millage rate is 0.300. That’s a good starting point – it is usually between 0.250 and 0.300, but air of the side of conservative. But let me show just how convoluted your actual number will be.
Take for instance everything that goes into determining your millage rate in Charleston county. You can see that the county’s base millage rate is 0.05560. They break this down to show you what each of this goes to. It includes county operations, county bonds, park and rec operations, and the local college. The school millage rate is 0.158 – this is pretty steep and accounts for over half of the millage rate! But this is what keeps Charleston County Schools going. And then each of the municipalities. If you’re incorporated into a municipality, you’re going to be paying higher taxes to that municipality. So if you’re both in Charleston county AND formally incorporated into Charleston city, you’re going to pay 0.0843. But take a look at some of the other cities. Mount Pleasant taxes are actually half that of Charleston at 0.0393, while Sullivan’s island is at a whopping 0.588, that’s almost 9 times higher than Charleston City. Now other millages are on a case-by-case basis, so certain fire districts or school boards are going to have individual millage rates levied on top of everything else.
So let’s put everything together. Let’s say for instance you just bought a home on James Island. Let’s say it was 400 thousand dollars and you’re confident the county will assess you at 400 thousand. But you’re going to live in it! So you qualify for the 4% exemption.
So let’s multiply 400 thousand by 0.04, and you’re left at a taxable value of 16 thousand dollars. Now remember when I said the millage rate was typically just .300 as a rule of thumb? Let’s use that here. But you also qualify for the exemption of the school district millage, so let’s subtract 0.15 which is roughly half. So your total millage rate is 0.15. We’re left with 400 thousand times 0.04 times 0.15, which is 2400 dollars. Your total tax bill for that year is 2400 dollars. Divide that by 12 and you can reasonably expect to pay around 200 dollars each month toward your taxes in your escrow account.
But wait, what happens if that 400 thousand dollar home was an investment property and not a primary residence? Well the numbers are a little simpler. That would be 400 thousand times .06 times .300 because you not only are taxed at the higher 6% rate but you also have to pay the school district millage rate. Your yearly tax bill in this case would be 7200 dollars. Divide that by twelve and you’re left with roughly 600 dollars per month going to taxes.
So the moral of the story is that if you live in the home yourself, your tax bill will usually be about one-third of the tax bill as someone who used it as an investment property. You just need to file for the exemption. I say it again. You. Just. Need. To. File. For. The. 4%. Exemption. For this James Island example I also calculated the actual millage rate and it was 0.2915, so pretty darn close to .3.
So that’s everything that goes into determining your property taxes here in South Carolina. It wasn’t too painful, was it? Now go forth and impress your friends at the bar with your newfound knowledge. And as always, if you want to talk more about Charleston taxes or real estate, please let me know.
