What They Are and How To Assess What You’ll Pay

Property Taxes: What They Are and How To Assess What You’ll Pay

Whether you’re already a property owner or looking to invest in property, anticipating the cost of property taxes is vital for your budget and bottom line. Property taxes may be confusing at first glance.

Thankfully, you can plan appropriately for these taxes each year with the proper insight and understanding.

What They Are and How To Assess What You’ll Pay
What They Are and How To Assess What You’ll Pay


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What Are Property Taxes

Property tax is a local government tax on real estate or certain types of personal property, such as residential real estate or undeveloped land. The amount you pay depends on the assessed value of your land and any developed structures, such as a home or commercial properties. Specific tax rates vary based on your state and local municipality.

Depending on the county or state, the value of a property might include the value and zoning of the parcel of land and other tangible fixtures, such as cabins, roadways, or developed campsites.

How Property Taxes Are Calculated

While many annual taxes are based on income, property tax is unaffected by an individual’s earnings. Instead, taxation is based purely on the property’s assessed market value (an ad-valorem local or county tax).

Property Tax and Real Estate Tax: Differentiating The Two

Property and real estate tax are often considered the same, but they are different. A property tax is assessed on all property types, including land, homes, businesses, and personal property. Real estate taxes are only estimated on “real” property, such as land or buildings, and not tangible assets. Thus, real estate taxes are one subcategory of your overall property tax portfolio. The terms are usually used synonymously.

Where Do Property Tax Funds Go

Property taxes fund essential local and state government programs that provide community services. Governments use these taxpayer funds to pay for infrastructure and public services, including schools, libraries, roads, police, community centers, emergency services, and firefighting.

Taxpayers elect local leaders such as mayors, council people, and assembly members who decide how to allocate the money collected across the local needs.

How To Calculate Property Tax Rates

The first step in calculating property taxes is to determine the taxable value of your property. Your local assessor’s office usually determines this value and is typically set at what the assessor considers “fair market value.” Yet, some assessors look at median home value.

For a rough estimate, multiply the taxable value by the applicable tax rate. For example, if your home has a taxable value of $200,000 and a tax rate of 1.5%, your annual property taxes would be estimated at $3,000.

Determining Your Area’s Millage Rate

First, you must find your local millage rate to determine your county’s tax rate. Millage rates are expressed in “mills,” equal to one-tenth of a cent (.001). This means that a mill rate of 2 mills equals an actual tax rate of 0.2%.

You can usually find your local millage rate information on your county assessor’s website or contact the office directly.

Understanding Property Tax Assessments

Property taxes are usually reassessed yearly in most areas (up to every three years for some areas). With reassessments every one to three years, you can expect fluctuations in your tax bill.

Determining Property Tax Exemptions

Property owners may also be eligible for certain tax exemptions that reduce their property tax burden. These include:

  • Homestead exemption: Most locales provide a homestead exemption or discount if you live at the residence permanently, provided it isn’t also used as a vacation home or investment property.
  • Exemptions for those with liabilities: A homeowner with a disability may be subject to reduced tax rates or completely exempt.
  • Senior citizen exemption: Some states will provide a discount or freeze their rates for folks over 65 on a fixed income.
  • Religious exemption: Some church properties are subject to rate reductions.

What if I Don’t Agree With My Property Tax Bill

Unfortunately, you cannot appeal a tax bill based on disagreement with the established millage rate for your location. Property tax laws are uniform across a county. However, if you feel your property appraisal is incorrect or you were not given an exemption you qualify for, you can submit an appeal.

Check your tax surveyor’s website for steps and property tax forms to appeal in your locality.

Since an elected official often determines fair market prices, keep in mind that changing millage rates would require political advocacy and system-wide changes. Some tax advocates believe property taxes are too high, while others believe a nationwide increase would benefit struggling communities.

Furthermore, several third-party companies are experts in filing appeals for property appraisals. Most of these companies work on a commission basis, meaning they will handle the necessary filing with your local town, but they are entitled to keep a percentage of any savings they generate.

How To Pay Property Tax Fees

If you received a property tax bill in the mail, you might wonder how to pay it. There are several different ways.

  • Escrow accounts: Many lenders require an escrow account to pay your property taxes. If you borrowed money to purchase your home or property, your escrow account is likely footing the bill to prevent property tax liability. You can monitor your escrow account and taxes online or by looking at your paper statements.
  • Direct deposit: If you opted out of escrow or own a home without debt, you can make your tax payments directly to your local tax office. Your bill will likely have instructions for paying taxes online or mailing it in. Ensure you keep up with critical due dates. Some taxes are paid annually, while others need to be paid quarterly.

The Consequences of Missing a Tax Property Tax Payment

Like other taxes, not paying them can have dire consequences. Your county can place a lien on your home when you don’t pay or pay late. If you ever put the house up for sale, the county can recoup its money before any proceeds go to you.

Avoiding your property taxes can lead to foreclosure or being sent to a tax collector agency.

Pay attention to your taxes if you are having severe difficulties. Contact your local tax office or county treasurer and inquire about setting up a payment plan for tax relief. Staying in touch will keep you out of trouble and help stave off penalties or interest charges for being delinquent.

Property Taxes FAQ

You now have all the basic information you need about property taxes. Now it’s time to review a few frequently asked questions to ensure you have all the necessary answers.a

If I Invest in Real-Estate Investment Trusts or Funds (Reits), Do I Owe Property Taxes?

All physical property in the U.S. incurs property taxes, but if you own a real estate fund, you won’t be responsible for paying taxes directly. The fund manager will handle paying all property taxes and will pass along these costs in their management fees.

Why Are My Property Taxes So Expensive?

Property taxes are based on the value of your home or tangible property at your home. If the value of your house goes up, your property tax bill is likely to go up as well.

Do I Have To Pay Back Taxes?

If you don’t pay your taxes on time and a lien is in place, you will likely have to pay back taxes. Contact your local tax office as soon as possible to make payment arrangements.

Can I Appeal My Property Tax Bill?

Yes, you can appeal if you think it was appraised incorrectly or were not given an exemption for which you qualify.

Why Do I Have To Pay Property Taxes?

Property taxes fund local government services such as schools, police departments, and public works. They also help support city infrastructure projects. They keep your neighborhood functioning.

Are Property Taxes Deductible?

Yes, if you itemize your deductions when filing your taxes, you can deduct the amount of money paid in property tax from your annual income.

Can I Pay My Property Taxes With a Credit Card?

Yes, most tax offices accept credit card payments. However, you will likely be charged an additional fee for using the service. Make sure to check with your local tax office before using this option.

Stay in The Know

Overall, staying on top of your property taxes is essential in keeping up with your bills and avoiding unnecessary fees or trouble. Carefully review your statements, keep up with payment deadlines, keep a budget for your annual taxes, and contact your local town tax office if you have any questions.

This article by JayDee Vykoukal originally appeared on Wealth of Geeks, and was republished with permission.

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