How to Cut Your Property Taxes; IRAs for Home Purchases

As many as 60% of homes are assessed for too much, and about 33% of property-tax appeals succeed. We offer tips on how to lower your load. Plus, whether an IRA can be used to pay off a mortgage.
By: Kimberly Lankford: The Wall Street Journal Online
Question: The rural county where I live has just reassessed real estate values, and my home's assessment more than tripled, as did most others in the country. The assessed value is now more than my most recent property appraisal. Should I appeal? What information would I have to present?

Answer: Go for it. As many as 60% of homes are assessed for too much, estimates Pete Sepp, of the National Taxpayers Union, and about 33% of property-tax appeals succeed.

Procedures vary, but you generally have 30 to 60 days after receiving an assessment notice to file an appeal. Ask the assessor's office for a copy of your property card, which documents the information on which the assessment was based. If the card lists the wrong number of rooms or square footage, for example, you may be able to get your assessment changed without a formal appeal.

If the information is accurate, go to Zillow.com to see how your home's assessment stacks up against others in your neighborhood. If you find that similar homes are assessed at a lower value, you may have a strong case.

If you spot big discrepancies, check your local assessor's office's records for more details on homes with similar features and lower assessments. Or find comparable assessments and explain why your home's value should be lower, says Sepp, whose organization publishes the helpful brochure How to Fight Property Taxes ($6.95). Some jurisdictions also allow you to submit as evidence market-value information, such as your recent appraisal.

Question: My wife and I just bought our first house. Within a week after closing, we found out that you can use your IRA toward a first-time home purchase, and each person can withdraw $10,000 toward "qualified acquisition costs." We have an 80-10-10 mortgage (80% from the first mortgage, 10% second mortgage, 10% down). Can each of use withdraw $10,000 from our IRAs without paying a penalty if we put the money toward paying off the second mortgage?

Answer: Good idea, but the answer is no. You can't take an IRA distribution to pay off any mortgage, regardless of whether it's a first or a second loan.

First-time home buyers (which the IRS defines as anyone who hasn't owned a house within the past two years) can avoid the 10% early-withdrawal penalty only if they use the IRA money to pay qualified acquisition costs for a principal residence before the end of the 120th day after withdrawing the money.

Qualified expenses include acquiring, constructing or rebuilding a residence. Closing costs are covered, but paying off a loan isn't, says Greg Rosica, a tax partner with Ernst & Young. Nor can you withdraw the money after the fact and treat the distribution as though the cash had been used for the down payment you've already made, says Bob D. Scharin of Thomson Tax & Accounting.

For more information about rules for IRA withdrawals, see IRS Publication 590, Individual Retirement Arrangements.