Are Real Estate Tax and Property Tax the Same?
Gain a comprehensive understanding of real estate and property taxes, from clarifying terminology to understanding their assessment and payment.
Taxes on property represent a financial obligation for homeowners across the United States. These funds support community functions and services. Understanding these taxes, how they are calculated, and their payment process is important for property ownership.
Clarifying Terminology
The terms “real estate tax” and “property tax” are often used interchangeably in everyday conversation. When referring to taxes on land and permanent structures like houses or commercial buildings, these terms generally describe the same levy. Real estate tax specifically refers to this immovable property.
However, “property tax” can be a broader term. It encompasses real estate taxes but can also extend to taxes on movable personal property in some jurisdictions, such as vehicles, boats, or business equipment. For most homeowners concerned with their primary residence, “real estate tax” and “property tax” refer to the same obligation on their home and land.
What Real Estate/Property Tax Is
Real estate and property taxes are local levies imposed on the value of real property. These are ad valorem taxes, meaning “according to value,” where the amount owed is proportional to the property’s assessed worth. Local government entities, including counties, cities, towns, and school districts, levy these taxes.
The revenue generated from property taxes serves as a source of funding for public services that benefit the community. This includes public education, law enforcement, fire protection, road maintenance, parks, and other local infrastructure and operations. Property taxes ensure these costs are distributed among property owners within the jurisdiction.
How Real Estate/Property Tax is Determined
Real estate and property taxes are calculated based on a property’s value. Local tax assessors estimate the market value of properties within their jurisdiction. Market value is the estimated price a property would sell for under normal conditions, considering factors like location, size, condition, and recent sales of comparable properties.
From this market value, an assessed value is derived for tax calculation. In some areas, assessed value may be the same as market value, while in others, it is a percentage known as an an assessment ratio.
Local taxing authorities establish tax rates, often expressed as a “millage rate” or “mills,” where one mill equals one dollar of tax for every $1,000 of assessed property value. The final tax bill is calculated by multiplying the assessed value by the tax rate. Properties undergo periodic reassessment to reflect market changes.
Payment and Administration of Real Estate/Property Tax
Local county or municipal tax collectors handle the collection and administration of real estate and property taxes. Property tax bills are issued annually or semi-annually, with quarterly payments also an option in some areas. Homeowners have several payment methods, including online portals, mail, in-person, or automatic withdrawals via a mortgage escrow account.
Failure to pay property taxes can lead to financial repercussions. Unpaid taxes accrue penalties and interest, increasing the amount owed. If delinquency persists, a tax lien may be placed on the property, giving the taxing authority a legal claim until the debt is satisfied. In cases of non-payment, the taxing authority may initiate a tax sale or foreclosure, which could result in property loss.