1. Financial Learning Center
  2. Home Buying
  3. Property Tax: What It Is And How To Calculate
City block with houses and well-kept lawns.

Property Tax: What It Is And How To Calculate

5-minute read

Before buying a new home, it’s important to be aware of the significance of property taxes, as they will be a major expense. It’s crucial that homeowners pay their property taxes because state and local governments rely on the taxes to provide the bulk of their revenue. All states and localities collect property taxes, but the amount varies widely from state to state and even county to county. This revenue collected by states and localities is used to provide the amenities that homeowners desire, like good schools, nice parks, reliable transportation, and other infrastructure. Overall, it’s important that you know what your property taxes are so you can stay on top of your payments and be a good community member.

What Is Property Tax?

Property taxes are imposed on all real estate within a locality’s border. Sometimes, property taxes are also collected on tangible personal property, like boats and cars. Thus, a property tax is typically based on the value of owned property.

As previously mentioned, this money collected goes to fund desirable amenities and community-based services such as water and sewer fixtures, a police and fire department, and libraries. In some states, a percentage of collected taxes goes directly to the state, particularly in low- or no-income tax states, to pay for services like roads and bridges.

During the home buying process, it’s important that home buyers consider their locality’s property taxes before purchasing a home. When weighing their options, home buyers should factor in whether a municipality’s taxes are worth the cost for them. For example, senior citizens might not want to pay the high local taxes that support a good school district if they don’t have kids to send to the schools.

Property Tax Calculator: How Are Property Taxes Assessed?

Property taxes are calculated using two main considerations: the value of the property and the tax rate. When evaluating these two components, it’s important to be aware of what factors are included.

First, the value of the property is determined by assessors or appraisers who work with the local taxing authority and keep track of local property values. The value can include the actual home, its land, or some personal property like cars. The value determined by the assessor will probably be less than the home’s market value, but that number can vary based on location. It’s also important to know that the property value is monitored, and changes in your property can affect your home’s value for better or worse.

The second part of calculating a home’s property tax is its tax rate. This number is determined by your local taxing authority, and can vary significantly based on your state, county and property.

Now when it comes to the actual calculation, property tax equals the value of the property multiplied by the tax rate.

Property Tax FAQs

By now, I’m sure you have many questions about property tax as you decide on your future home. But don’t worry! We have the answers.

How Is Property Tax Paid?

Before paying your property taxes, it’s important to note that payment methods tend to vary across the country. So before you pay your property taxes, make sure to check your locality’s website to determine the preferred payment method. With that being said, property taxes are generally paid to the county treasurer. Typically, this bill can either be paid online or you can mail in a check. Regardless, make sure to check and see what your locality prefers, and make sure to pay it regularly.

How Often Is Property Tax Assessed?

Like many things, the frequency of property tax assessments can vary from locale to locale. Most states conduct property tax assessments every 5 – 7 years, but some states conduct them once a year or only when a property is being sold or financed. To learn more about the assessment process where you live, visit your locality’s website for more information.

What If I Don’t Agree With My Property Tax Assessment?

If you don’t agree with your property tax assessment after it’s been conducted, you have the option to start an appeals process. This process is available to property owners who think the results of their property tax assessment were either higher or lower than expected. If you fit into this category and would like to take advantage of this option, contact your local assessor directly to learn how your home’s property tax assessment was prepared. Make sure to have them document where they think the assessment is incorrect, either by looking at comparable sales figures or costs estimates. You should also make sure to pay close attention to deadlines about the appeals that should accompany your property tax assessment. Ultimately, your goal is to gather as much data as possible so you can present a strong case against your original property tax assessment.

What Happens If I Don’t Pay My Property Tax?

Failing to pay your property tax will result in legal action. More specifically, a legal claim against your property and financial assets called a tax lien will be placed on your property. This can be problematic for homeowners, so make sure to pay your property taxes. If you’re worried that you might be unable to make your property tax payments, it might be a sign to choose a different property.

Can I Deduct My Property Taxes From My State And Federal Taxes?

Before changes were made to the 2017 Tax Bill, a property owner could deduct all of their state and local taxes (SALT) from their state and federal taxes. Now as a result of the 2017 Tax Bill changes, state and local tax deduction is capped at $10,000. With this law’s recent changes, it’s important for you to consider whether moving to a high tax state is within your budget as a homeowner.

How Much Of A Difference Does Location Make?

Believe it or not, property taxes can vary significantly across the United States. As an example, let’s compare the property taxes on a typical $250,000 home located in New Jersey versus Hawaii. New Jersey is known to be the highest property tax state while Hawaii is known to be the lowest if you live full-time in a home you own. Because of the state and local tax cap, money can be lost to homeowners depending on where they live. Ultimately, it’s important to consider the difference in state and local taxes when deciding where you want to live.

Mortgages Are Paid Eventually, But Taxes Are Forever

Hopefully by now you realize the importance of property taxes and understand that they are inescapable after you buy a house. While higher taxes can result in nicer amenities, you need to be able to afford your home’s property tax. So when you evaluate different homes and locations to live, it’s important to calculate a home’s property tax and be sure you can pay it so that you can avoid legal action. As you embark on the home buying journey, make sure to keep these tips in the back of your mind, and continue to learn more about your personal finances.

A Home Of Your Own

Find a place of your own. We can help if you apply today!

Apply For A Mortgage Online

NMLS #3030