With unemployment at a near-record high and greater stress on social services, local governments are increasingly dependent on their property tax base to make ends meet. (Actually making ends meet would be great, many are just looking to stay just a few tens of millions in the red.) These pressures, combined with historical home valuations that no longer reflect market reality, are leaving homeowners with massive tax bills despite having lost much of the value of their homes.

So what do you do when you find yourself looking at an inflated property tax bill caused by a bad assessment?

According to research by Deutsche Bank, homes in the United States are on track to lose nearly a third of their total value from their all-time highs in 2006.  They value the U.S. housing market at $24 trillion in the second quarter of that year but into the second half of last year price depreciation had wiped out about $5.7 trillion in housing wealth and they suspect that the market hasn’t hit bottom yet.

The states hardest hit were California ($2.58 trillion lost), Florida ($815 billion down), Arizona ($325 evaporated) and Nevada ($179 billion in the hole) which lost 66% of housing wealth.

Consumer Reports has a great article on appealing your tax assessment. Rule number one is to make sure that you file your appeal before the deadline (there usually is one, so don’t ignore those notices that come in the mail from your city or county.) You’re also going to want to be armed with good information on the true value of your home. A professional appraisal is best, but real estate web sites like HotPads.com can show you what similar homes in your area are going for. Your county sales records will also give a clue based on recent home sales.

This was also a recent topic of conversation in a Wall Street Journal Q&A that’s worth your while to review.

The National Taxpayer’s Union offers a $6.95 book called How to Fight Property Taxes. They say that their orders have tripled since January 2009.

It’s important to remember that the assessed value of your property is only half the battle. Your local government may keep your assessed value low but raise your tax rate. So it’s critical that you follow the local legislation to ensure that you don’t get a nasty surprise in your next monthly mortgage statement. If your tax rates are going up then you have even more cause to fight a bad assessment. And fight the bad pols who want to squeeze you during these tough times.

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