Understanding Property Tax Calculation, Rates, and Impact

Cities, counties, and school districts levy property taxes on properties within their jurisdictions, which are then used to fund services. These levies are combined to compute a region’s property taxes and the total tax rate, known as a mill rate. This rate is multiplied by a property’s assessed value, resulting in higher payments for those with more valuable properties.

Local governments in America collect property taxes, often based on the property’s value. The money raised is typically used to fund community safety, schools, infrastructure, and other public projects. SmartAsset’s tools can help you better understand the average cost of property taxes in your state and county.

In some parts of the country, your annual property tax payments could be less than one month’s mortgage payment. It can be three to four times the monthly mortgage payment in some regions. With property taxes so variable and location-dependent, you’ll want to consider them when determining where to live. Many areas with high property taxes offer excellent facilities, such as superb schools and public services, but if you want to live there, you must budget for the taxes.

How are property taxes computed?

Your state and municipal governments decide how your property taxes are calculated. Typically, this is accomplished by multiplying your home’s assessed value by the local property tax rate. Two formulas can be used:

Property tax equals assessed home value multiplied by the tax rate

For example, if your home’s assessed value is $400,000 and your local tax rate is 2%, you’ll pay $8,000 in property taxes yearly.

Property tax equals assessed home value multiplied by mills per thousand.

The tax rate can also be called the “millage rate.” One mill means one-thousandth of a dollar or $1 for every $1,000 in housing value. Based on a property worth $400,000 and an example millage rate of 29 mills, you

This estimate may include a home’s assessed or market value, depending on where you live. They are not the same thing. A home’s market value is the amount it would sell for, depending on local market conditions and similar sales of other houses in the neighborhood.

The appraised value is usually lower. That’s because market value is based on the property’s best possible use, regardless of its condition, whereas tax assessors must value the property only on its current state. All tax values in a particular jurisdiction must be current as of the same date, known as the “tax status date.”

Homeowners should be aware that not all states calculate the taxable value based on the full worth of their property. Many countries utilize a fractional assessment system, which assigns a less fixed percentage of the value. Exemptions such as the homestead exemption (see below) and those offered to veterans, senior citizens, and others can help reduce a tax payment. Furthermore, some states have property taxation caps that keep property taxes below a specific threshold.