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What Homeowners Should Know About Calculating Property Tax

property tax

Most people know that homeownership requires a monthly mortgage payment. But did you know that you’ll also have to pay property taxes? If you already own a home, you can see how your tax is calculated on your most current property tax statement. 

If you’re considering buying a home, look on the real estate listing for assessment and tax information, or go to the county website to find out the annual property tax. 

Note: Property taxes can change. The assessed value of your house can increase or decrease, depending on the local real estate market. Your assessment also can rise or fall depending on changes you make to your house, like additions to your property. And the tax rate can change depending on your local government. 

Although the government sends you a tax bill every year and tells you how much you owe in property taxes, it’s important to know how that tax is calculated. Numerous factors come into play when calculating property taxes, from your property’s assessed value to the mill levy (tax rate) in your area.

Here’s how to determine what your property tax will be, so you don’t get blindsided by this large homeowner expense.

What is a home’s fair market value?

The market value of a home is basically the amount a knowledgeable buyer would pay a knowledgeable seller for a property, assuming an arms-length transaction and no pressure on either party to buy or sell. When a property sells to an unrelated party, the sales price usually is assumed to be the fair value of the property.

What is a home’s assessed value?

One factor that affects your property taxes is your property’s worth. You probably have a good understanding of your home’s market value—the amount of money a buyer would, hopefully, pay for your place. (You also could enter your address in a home value estimator to get a ballpark figure.)

But tax municipalities use a slightly different number; it’s called your home’s assessed value. Tax assessors can calculate a home’s current assessed value as often as once per year. They also may adjust information when a property is sold, bought, built, or renovated by examining the permits and paperwork filed with the local municipality. 

They will look at basic features of your home (like the acreage, square footage, and number of bedrooms and baths), the purchase price when it changes hands and comparisons with similar properties nearby. 

A home’s assessed value sometimes will be strikingly similar to its fair market value, but that’s not always the case, particularly in heated markets. In general, you can expect your home’s assessed value to amount to about 80 percent to 90 percent of its market value. 

You can check your local assessor or municipality’s website, or call the tax office for a more exact figure for your home. You also can search by state, county and ZIP code on publicrecords.netronline.com.

If you believe the assessor has placed too high a value on your home, you can challenge the calculation of your home’s value for tax purposes. 

You don’t need to hire someone to help you reduce your property tax bill. As a homeowner, you may be able to show how you determined that your assessed value is out of line.

What is taxable value?

The taxable value of your house is the value of the property according to your assessment, minus any adjustments such as exemption amounts.

What’s a mill levy?

In addition to knowing your home’s assessed value, you’ll need to know another number known as a mill levy. That’s the tax assessment rate for real estate in your area. The tax rate varies based on the public amenities offered and revenue required by local government.

If you have a public school, police force, full-time fire department, desirable school districts, and plenty of playgrounds and parks, your property tax rates will be higher than a town without them. 

Your area’s property tax levy can be found on your local tax assessor or municipality website, and it’s typically represented as a percentage—like 4 percent.

To estimate your real estate taxes, you simply multiply your home’s assessed value by the levy. So, if your home is worth $200,000 and your property tax rate is 4 percent, you’ll pay about $8,000 in taxes per year.

Where to find property taxes

In many cases, you may not have to calculate your own property taxes. You can often find the exact amount (or a ballpark figure) you’ll pay on listings, or you can enter a home’s location and price into an online home affordability calculator that not only will estimate your yearly taxes, but also how much you can anticipate paying for your mortgage, home insurance, and other expenses.