What Is Real Estate Tax and How Is It Calculated?
Understand the key factors that determine your property tax bill and the standard administrative processes available to homeowners for managing their liability.
Real estate tax, commonly known as property tax, is a levy on real property that owners pay to local government entities. The revenue generated from this tax is a primary source of funding for public services that benefit the community, including education systems, law enforcement, fire services, and the maintenance of infrastructure like roads and libraries. This tax is based on the value of the property, including both the land and any structures on it.
The Calculation of Real Estate Tax
A property tax bill is based on two elements: the property’s assessed value and the local tax rate. A government tax assessor determines the assessed value, an official valuation for tax purposes that is not necessarily the same as the property’s fair market value. The assessment is meant to be a uniform valuation relative to other properties in the jurisdiction.
The assessed value is multiplied by the local tax rate to calculate the tax owed. This rate is often expressed as a “millage rate,” where one mill equals $1 of tax for every $1,000 of assessed property value. Local governing bodies, such as city councils and school boards, set these rates annually based on their budgetary needs.
The total tax rate is often a combination of rates from different jurisdictions, like the county, city, and local school district. For example, a home with an assessed value of $300,000 and a combined millage rate of 25 mills (2.5%) would have an annual property tax of $7,500.
In addition to the value-based tax, some jurisdictions include non-ad valorem assessments on the tax bill. These are flat fees for specific services that benefit the property, such as solid waste collection or storm water management. These fees are added to the ad valorem tax to arrive at the total amount due.
The Billing and Payment Process
The local tax collector’s office mails the tax bill to the property owner. Billing cycles and due dates vary by jurisdiction; some areas bill annually, while many issue tax bills in semi-annual or quarterly installments. It is the owner’s responsibility to ensure the bill is paid on time, as not receiving a bill does not excuse a late payment.
Homeowners have two primary methods for paying their property tax bill. The first option is to pay the tax collector directly. Some jurisdictions may offer a small discount for early payment, but the availability and terms are determined by the local taxing authority.
The second payment method is through a mortgage escrow account. When a homeowner has an escrow account, their monthly mortgage payment includes an additional amount for property taxes. The mortgage lender holds these funds and pays the tax bill directly to the collector on the homeowner’s behalf when it comes due.
Appealing Your Property Assessment
Property owners have the right to challenge the assessed value of their property if they believe it is inaccurate or unfair. This process, known as an appeal, focuses on the valuation determined by the assessor, not the tax rate itself. An appeal is an administrative procedure to ensure assessments are equitable and reflect the property’s correct value.
The first step is to review the assessment notice for factual errors regarding the property’s characteristics, such as incorrect square footage or lot size. If the facts are correct, the next step is gathering evidence to support a lower valuation. This evidence often includes recent sales data for comparable properties in the immediate vicinity.
With supporting evidence, the owner can contact the local assessor’s office, as many disputes can be resolved through an informal review. If a resolution is not possible, the owner can file a formal appeal with a local administrative body, often called a Board of Equalization. This formal process involves a hearing where the owner and the assessor’s office present their cases.
Available Tax Relief and Exemptions
Beyond appealing an assessment, homeowners may lower their property tax burden through various tax relief programs and exemptions. These programs provide financial assistance by reducing a property’s taxable value. Unlike an appeal, which challenges the valuation, an exemption is a benefit granted to qualifying individuals based on specific criteria.
One of the most common programs is the homestead exemption, available for a property owner’s primary residence. This exemption works by subtracting a fixed dollar amount or a percentage from the property’s assessed value. To receive this benefit, homeowners must file an application with the property appraiser’s office and meet residency requirements.
Many jurisdictions also offer additional exemptions for specific populations. For example, extra exemptions may be available for:
- Senior citizens, who may qualify based on age and income limits.
- Veterans, particularly those with service-connected disabilities.
- Individuals who are legally blind.
- Individuals who are permanently and totally disabled.
Each of these programs has distinct eligibility requirements, and homeowners must apply and provide documentation to receive the benefits.