How Are Property Taxes Calculated

Ad valorem taxes, of which property taxes are a subset, are levied on the basis of an assessment of the property’s market value.

If you live in an area where property taxes are levied, they can be a significant source of revenue for your city or county. Approximately 31% of all state and local tax revenue in the United States was derived from property taxes as of 2021.

Calculating Taxes on Real Estate

Taxes are levied on the land and constructions of different property kinds. A vacant piece of land will have a lower assessed value than a comparable piece of property that has been renovated. As a result, the property taxes on that land will be lower. The land assessment may be greater if public facilities, such as sewer, water, and gas, are available. Assessments and taxes may rise if an assessor believes that the property has development potential. A property’s tax burden is determined by a percentage of its assessed value.

Cities and counties rely heavily on the revenue generated by property taxes. The proper rates are determined by the various boards, councils, and legislatures. They undertake budget hearings to determine how much money is needed to provide the many services that the local community need. Property taxes help to pay for essential services like education, transit, emergency response, and public parks and libraries.

For the 2018 tax year, the Tax Cuts and Jobs Act limits federal deductions for state and local taxes to $10,000 ($5,000 for married taxpayers filing separately) (SALT). Each and every tax owed on the property is taken into account while calculating this total amount.

The Evaluation of Real Estate

The valuation of your house is determined by the local tax assessor’s office. In some cases, property assessments may only be done once every five years. It depends on local or state law. First, you’ll get a value assessment, and then you’ll get a property tax bill.

According to the tax assessor’s estimates, your property’s worth is taken into account while arriving at the assessment.

3 The three most common methods for determining a product’s worth are as follows:

  • Sales comparison: Your property will be compared to similar properties that have recently sold in the area. Afterwards, they’ll take into account any factors that can make your property more or less valuable than the ones that have already been sold. Your home’s assessed value may rise if, as an example, you just renovated your kitchen and installed high-end designer appliances that outshine those of your neighbours.
  • The cost method: The assessor determines how much it would cost to build a new house from scratch, including materials and labour, from scratch. If your property is older, they will take into account depreciation. Additionally, your land’s worth will be factored into the total assessed value.
  • When it comes to commercial and company properties, this strategy is typically applied. Based on criteria like maintenance costs, insurance costs, and current rental rates, the assessor makes an educated guess as to how much money you could expect to make if you rented out the property.
  • Some property tax invoices provide precise information on how much of your money is spent on government and public services. If you’re curious in how your local government spends your property tax money, check with them.

Tax on Millage or Mill Levy

Your property’s tax rate is expressed in mills, where one mill equals one-tenth of a cent. One mill equals $1 for every $1,000 in assessed property value.

To get the overall mill rate for an entire region, each tax jurisdiction’s mill rate is computed independently, and then all the levies are tallied to come up with the total. A tax can be levied on a property within the boundaries of a city, county, or school district. To reach the total mill levy, each entity calculates its own mill levy and adds it to the total mill levy.

How much tax money is needed to perform the essential functions of the local government if the total assessed property worth in a certain county is $100,000,000, and the county decides that it requires $1 million to do so? The mill levy would be 1 percent of $100 million, or $1 million divided by 100 million.

Once that is done, let’s say that both the city and the school district determined mill levies of 0.5% and 3.0%. For the entire region, the mill levy would be 45 mills (1 percent, 0.5 percent, and 3 percent).

Figuring up Property Taxes

The first step is to figure out how much your property is worth. Finally, the tax rate is applied to your property’s assessed value. A “millage rate” or “mill rate” is another name for this rate. One mill is equal to one-tenth of a penny, or $1 for every $1,000 worth of property’s worth.

Various millage rates can be imposed by various governments. Property taxes are rarely calculated with a single mill. Georgia, for example, has an average mill rate of around 30 mills. 4 As a result, a Georgia homeowner pays about $30 per $1,000 of their property’s value in property taxes annually.

The amount of tax income that a community needs to raise in a certain time is often determined, and then the mill rate is set to raise that amount of money through property taxes.

State and local governments often determine property taxes, so yours may be greater or cheaper than the property taxes of a neighbouring home across county borders. The state millage rate in 2015 in Georgia was 0.05, however the state millage rate on all real and personal property has been phased down. Returning to the Georgia example, 5 Local bodies, such as county governments, collect the rest of the average homeowner’s property tax.

An Instance

Let’s say you own a home valued at $250,000 that was just recently appraised. The millage rate in your area is 45. The tax bill is $11,250 if the property’s value is multiplied by 4.5 percent. This is a yearly rate, so if tax rates stay the same, you’ll pay $11,250 every year in taxes. A millage rate reduction to 15 would reduce the amount of property taxes you pay each year by $3,750.

How to Pay Your Property Taxes

However, you have a variety of choices for paying your property taxes, which will be determined at the municipal level. As part of your monthly mortgage payment, you may choose to pay property taxes directly to your local tax authority, or you may pay them in annual or semi-annual instalments.