When you buy a house or property, the mortgage company that holds your mortgage usually has an escrow account set up, which holds your monthly payment towards your homeowners insurance and property tax. The standard procedure is for the mortgage lender to send you the money in a form of a check in December to pay your property tax. If you do not receive this check by the end of December, you should consult with your mortgage lender. The idea of paying your property taxes before the end of the year, means you can claim it on your current years tax return that you will file in January or February.
People expect to pay their property tax before the end of the year so they can take the tax as a deduction on their taxes. If you do not receive the payment before the end of the year, you will have to wait until the next filing season to claim your property tax, which means this year’s property tax deduction is not available and therefore, you have one less deduction. This means a lot to people that rely on deductions to reduce their total tax liability. You can still claim your mortgage interest, but not the property tax.
Some people do not have an escrow account set up by the mortgage lender for one reason or another. If you happen to be one who does not, you have to save the money yourself. This is sometimes very hard for people to do, especially if you are on a tight budget. You could wait until you receive a refund for your yearly tax returns, but you might miss the first installment date, which in most states is January 31. The second installment is then needed by the end of July.
If you miss the first installment, you are not able to participate in the installment plan. You can still do it this way, but you will be charged a penalty and interest on the outstanding balance. Many people have found that the interest rate can accumulate quite rapidly if you do not have the funds available when needed. This can cause a strain with the county and the homeowner. The county wants their money. If you leave your property tax liability go to long, you might find yourself in quite a predicament. The county can and will come after your house for the money.
It is always better to have some form of escrow account set up by your mortgage lender or by you, therefore, the money will always be available to pay the taxes. If you fall behind, it is very important to get caught up as soon as possible in order to prevent a lien being put against your property and risk an auction of said property to recoup the delinquent property taxes. Property taxes owed on a property never go away unless they are paid. Property owners need to plan ahead, especially if the mortgage lender does not provide an escrow account to save the money for you.