Understanding Property Tax: How Property Tax Works

Property tax is a tax paid by property owners based on the assessed value of certain assets that they own including real property (which is residential property like houses, townhouses, condos), land, and in some cases motor vehicles and boats. Property tax rates are set by local governments to raise tax revenue paying for services like infrastructure connected to a property, law enforcement, road and highway construction, and schools.

You either pay property taxes through your monthly mortgage, or you remit your property tax bills to your local tax authority separately. Property tax rates vary depending on your area and the valuation of your property, which is determined by a tax assessor. Every US state imposes tax properties on real property or real estate, but not every US state imposes tax on other types of property like cars.

Real estate tax is a type of property tax that is limited to taxes on real property, such as houses, apartments, and condos. Property tax applies to tangible personal property, which can include real estate but that can also include other assets like cars and boats.

Every state has a different property tax rate, which will further differentiate based on the value of the property you own. Here are a few simple tips for calculating property tax.

1. 1. Assess your property. The amount of property tax you pay is based on the assessed value of your taxable property. Locally-elected assessors visit your home to determine its fair market value by assessing things like your square footage, any amenities such as pools, decks, and number of bathrooms, and comparable homes in the area. Your property will be assessed every one to ten years depending on which state you live in. In states like Wyoming, Arizona, and Michigan, homeowners are required to receive a new valuation every year, while valuation in Colorado occurs every two years and in South Carolina every five. The property value of all homes in a district is then averaged to find the median home value, which helps to determine the mill levy.
2. 2. Determine the mill levy. The property taxes in a particular area are calculated using the mill levy, which means that you pay one dollar for every $1000 of property value in your area. A property sits in a number of overlapping jurisdictions, from the state level to school districts. Each jurisdiction determines its mill levy based on the total value of all property included in its borders and their annual budgetary requirements. Each overlapping jurisdiction combines their mill levies to calculate the total mill levy, a percentage by which all property in the area will be taxed.
3. 3. Multiply the mill levy by your property’s value. Calculate your specific property tax payment by multiplying your area’s mill levy by the assessed value of your property. This gives you the percentage of your property's value, and the amount that will show up on your property tax bills.

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