As a homeowner, you’ll have to pay property taxes. When it comes to property taxes, they can cost you thousands or even tens of thousands of dollars a year, depending on the size and value of your home and the local property tax rates.

In light of the fact that property taxes may add up quickly, it’s critical to know how they are calculated, what your local rate is, and how that might affect your annual tax bill. If you’re thinking about purchasing a home, you should be aware of these factors.

How can you figure out how much property tax you owe?

A millage tax, which is a fixed amount for every $1,000 of property value, is used to calculate property tax assessments. The mill levy rate is expressed as a whole number because it is $1 per $1,000 of assessed property value.

Property tax rates can range from as low as 10 mills to as high as 25 mills. A mill levy of 25% is equal to 2.5% when expressed as a percentage.

The assessed value of your home for tax purposes may be different from the actual market worth of your home. It’s the amount of money you’d get if you put your house on the market. It is possible that your home’s assessed value does not correspond to the market value as determined by the tax assessor.

For the most part, you don’t have to make your property tax calculations in the same way that you do your income tax calculations. Instead, you’ll receive a tax charge from the assessor every year.

The property tax amount stated in an on-line home listing may not be true. Local tax rates can be found with greater confidence at the office of the local assessor or at your title company.

Methods for determining the market value of your home

Appraisers often use one of three approaches when determining a home’s worth.

• Comparative sales method: Comparable properties (comps) are used to determine your home’s worth in this method. When a large number of houses are being sold in your neighborhood, this strategy works well. It can be tough to gather good comparisons to evaluate the worth of your house if the market is static or if your neighbours rarely sell.
• Method of replacement: This method, also known as the cost approach to real estate valuation, is used to assess the worth of your property by adding the value of the land to the value of the improvements (structures) on it.
• Using the income technique is the correct way to value any property that generates a regular source of revenue for you. This method combines sales comparisons with the income generated by the building to establish the capitalization rate (the rate at which the value of similar buildings increases in value). Divide the net income by the capitalization rate to arrive at the valuation.

There is nothing you can do to influence the way your property is valued for tax purposes. Tax assessors in your area decide the worth of your home. Because tax assessors are responsible for evaluating the value of hundreds or thousands of properties each year, they are unable to perform the kind of in-depth examination that an appraiser will when you sell or refinance a property..

In order to calculate the worth of a home, property tax assessors employ numerous methodologies, such as price per square foot or the rate of home price appreciation in your neighbourhood. “It all depends on the equipment they’re using. It’s not uncommon for states to perform some form of desktop assessment, but not a thorough appraisal.

Property tax assessments vary from one area to the next.

Until the next assessment, your tax amount will be predictable, because some jurisdictions revise their assessments every five years. When it comes to reassessment in some states, like Texas, the process takes place every year. When property values rise rapidly (as they did in many Texas cities), your tax bill may increase dramatically. According to her, “some people who migrate to Texas are in for a tremendous surprise.” There is no guarantee that what they are paying now will be what they will be paying in the future.

Unlike other states, Proposition 13 in California created a unique property assessment system. When you acquire a house, the value is set at the amount you paid for it. A local authority may impose additional parcel taxes when the assessed value has increased by no more than 2 percent each year. Your property’s assessment in California won’t change until you sell, but it may be revalued if you make improvements to your home.

The following method for calculating your individual tax rate: “It varies greatly from state to state, county to county, and even municipality to municipality. Become familiar with the people and products you’ll be dealing with. Be aware of what’s happening. Many people find themselves in hot water just because they lack knowledge.”

The culmination of the effort

Calculate your property tax by following these steps:

• Contact your local tax assessor’s office to find out the assessed worth of your home. If you know the block and lot number, you may be able to obtain the assessed value on the assessor’s website.
• The local assessor’s office is your best bet for figuring out your property’s mill levy rate. For new buyers, this information will be available from the title business, which will also have it on file.
• To make things simpler, the mill levy rate can be converted to a percentage. Simply change the decimal one point to the left to convert your mill rate to a percentage. 1.85% of your assessed property value is the tax rate for a mill rate of 18.5. Alternatively, you can multiply your assessed value by 0.0185 in order to determine how much tax you owe.
• Using the millage rate above, a $300,000 home would pay $5,550 in property taxes. Assessment ($300,000) x millage rate (1.85%, or 0.0185) equals property tax ($5,550) in this example.
• Property taxes can be paid on an annual, semi-annual, or monthly schedule. A good approach is to split the cost down into monthly instalments and put money aside each month so that you have it accessible when your tax bill is due. You’d need to set aside $462.50 per month for property taxes in the scenario above. Depending on your situation, your mortgage lender may ask you to pay 1/12 of your expected yearly property taxes as part of your monthly mortgage payment. Your mortgage servicer will take care of the taxes for you by depositing the money into an escrow account.

What it means financially

Even after you’ve paid off your mortgage, you’ll still have to pay property taxes. Before purchasing a home in a new city or state, do some research on local property tax rates and reassessment procedures to avoid being surprised by a large property tax bill.

Make sure you have enough money saved to cover your property tax bills. If you fail to pay your property taxes in full, you could lose your home.