My toilet tank fills to the water level then the water level drops about an inch. Once it drops an inch the black mechanism kicks in and the water level raises an inch. Our water bill was $500. What is causing this issue?

Leaky flapper valve. Put some food coloring in the tank, now look in the bowl. Bet the water is colored. Turn water off, remove the old flapper and get one that matches. Make sure the seat is smooth. If the seat is worn, you can get a combo flapper and seat kit or if the toilet is old, a replacement toilet.

Yup! In complete agreement with Ma0641... do the dye test and then replace the flapper... should resolve the issue.

Mark

If you still have seepage then check the flush valve seat for nicks or rough spots. Good luck, Tom

If you don't have food coloring suggest to close the angle valve under the toilet tank leave it for some time if the flapper valve or the flush valve seat is bad you will see the water leveldown, do as the above experts have suggested, Thanks.

John