How to calculate property tax on a house
What You’ll Learn
How a home’s value is assessed for tax purposes
Ways you can reduce (or increase) your property tax
Answers to the top property tax questions
Property taxes can have an unexpected impact on the affordability of a home. For example, if you’re planning to buy, they can make the difference between a home sliding well under budget, a place that stretches your finances uncomfortably thin, or perhaps pushing a property outside your price range altogether. If you own a home, having a better understanding of how property taxes work can help you decide what home improvements to make or uncover tax breaks/credits you could apply for. Before we get into the nitty-gritty of property taxes, let’s look at how they work for you.
What are property taxes used for?
In short, all the services provided by your city, county, or applicable jurisdiction are funded by property taxes. These services can be educational, like schools and libraries; protective, such as law enforcement and the fire department; and enhance your quality of life, for example, parks, roads, water and sewage improvements, and include additional services that benefit people in your community.
Even if you don’t personally take advantage of all the services your property taxes pay for—after all, no one wants to have to call the fire department to get their cat out of a tree—greater investment into schools and community services usually indicates higher property values. Which is a sweet tidbit to keep in mind if you plan to sell.
How do property taxes work?
A home’s property taxes are determined by the assessed value of the home multiplied by the property tax rate set by your local government. It sounds straightforward, but some cities or municipalities also levy their own taxes on top of county taxes. Often these additional taxes are rolled together so you only receive one property tax bill, but not always. To add to the confusion, some tax bills use the terms millage or mill rate to describe the property tax rate.
But to put it simply: Property tax = assessed value of a property x tax rate
The assessed value of your property is rarely equivalent to its market value, which can make property tax calculations somewhat nuanced. Your home’s value is actually judged 3 different ways, and the 3 resulting values can be quite different.
| What it is | What it’s used for | Who it’s decided by | |
|---|---|---|---|
| Market Value | How much homebuyers are willing to pay for the home | Selling the property | The listing real estate agent and/or the seller (plus the buyer who purchases the home) |
| Appraised value | An unbiased estimate of the home’s value | Helping lenders ensure the amount of the loan isn’t higher than the value of the property | A licensed or certified appraiser |
| Assessed value | The taxable value of the property | Calculating and charging property taxes | The local city or county property assessor |
Many people find that the assessed value of their home is much lower than the appraised value. This is because the assessed value is impacted by city, county, and state laws: A number of states set a limit on assessed property values to prevent fast-rising property values from raising the homeowner’s tax burden. As a result, property taxes in the US can vary dramatically from state to state.
How to find a home’s property tax amount
Home hunters:
If you’re looking at buying a home, you can get an idea of the property taxes by checking your favorite real estate app—most apps include at least a rough estimate of the kinds of ongoing taxes you’ll be likely to pay. If the app tracks the property tax history, you’ll also get an indication of how the property taxes may change over time.
Homebuyers:
When a seller has accepted your offer on a home, you’ll see the estimated monthly tax amount on the loan estimate(LE) and closing disclosure(CD) you receive from your lender. The first page of these documents will show you the estimated taxes, insurance and assessments monthly cost to ensure you’re aware of all the monthly costs that will be part of your ongoing mortgage payment. Mortgage lenders or servicers typically collect your property taxes in advance (and save them in an escrow account) to ensure these taxes are paid on time. In the ‘Other Costs’ section on page 2 of the LE and CD, you’ll also see how much prepaid property taxes you need to pay as part of your closing costs.
Homeowners:
Even if your home is fully paid off, you still need to pay property taxes, so it’s likely your city or county is already sending you a property tax bill twice a year. (Property taxes are typically due on March 1 and September 1.) If you don’t have a bill at hand and want to check your annual property tax rate, you can go straight to your county’s website. Alternatively, you can find your assessor’s contact information by entering your zip code on NETROnline. If your county doesn’t enable you to start a property records search online, this site will give you their contact information so you can call the property assessor’s office to get all the information you need.
Can I reduce my property taxes?
Maybe. There are a number of ways homeowners can try to reduce their property taxes. Most states offer a property tax exemption for disabled veterans. Some states offer property tax reductions for senior citizens or disabled people without military service. Other states offer tax incentives for homeowners with historic properties. If you’re a farmer or own the kind of land that can make you look like a farmer, there’s a good chance you might qualify for agricultural property tax breaks. If these don’t apply to you, you’ll be pleased to know many cities allow property owners to appeal the assessed value of their homes. If you can get your home’s assessed value reduced, your property taxes will also be reduced.
If you want to challenge your property tax amount, you’ll need to show your local city or county that the assessed value doesn’t reflect your property’s true value. Call your assessor’s office and they’ll be able to walk you through their dispute process. Typically, you’ll need to gather comparable home listings to show that homes with similar tax values are superior to yours. For example, if you and your neighbor both have 3-bedroom homes with a garage, but they have a 2-car garage and you only have a single car garage, you may have a good argument for getting your property taxes reduced. In many cases, you can start the tax dispute over the phone or in person. If you’re not able to come to a satisfactory conclusion then and there, you may be able to raise the issue with an independent tax appeals board.
How can property taxes impact my house hunt?
Great question. Property taxes are extremely localized because different municipalities set their own tax rates. Depending on where a municipality starts and ends, you may find that two homes of roughly the same price, size, and quality can have very different tax rates if they’re on different sides of a municipal border.
An area with a lower property tax rate may give you some extra wriggle room to buy a higher-priced home in that neighborhood. For example, if a home has a 3.5% tax rate and a $300,000 list price, it may have the same monthly mortgage payment as a $350,000 home in an area with a 3% tax rate. By looking at the assessed value and tax information for comparable properties in different neighborhoods you’ll be able to see which homes come with lower tax implications.
Do home improvements impact my property taxes?
Possibly. It depends on the improvement. Since property taxes are tied to the value of your home, it stands to reason that when your home value increases, your property tax will likely increase too. For fans of home improvement shows, the original series of Extreme Makeover: Home Edition is a cautionary tale of what can happen when home improvements outpace your property tax budget. However, as the name suggests, those home makeovers were extreme and not on the scale of the average home renovation.
Changing your kitchen countertop is unlikely to trigger a tax increase, but if a renovation needs a building permit, you can be sure a copy of that permit will get to your local tax assessor. Building permits help them ensure the assessed value of your home keeps pace with the home improvements you make. Adding square footage or an extra bathroom are the kinds of improvements that may trigger a tax increase. But not all home renovations are equal, so it’s helpful to know which renovations boost your property value the most. If you’re concerned that a tax increase might strain your finances, consider talking with a tax professional before making any remodeling decisions.
Your local real estate expert can be your property tax guide
Real estate agents are in a unique position to know the ins and outs of property taxes in the areas you’re looking to buy. If a home is eligible for a property tax discount or credit, they’ll be sure to let you know. If you’re thinking about putting your own stamp on a home you have your eye on, they’ll be able to give you a ballpark figure of renovation costs and possible tax implications. If you don’t have an agent yet, Better Real Estate can match you with a real estate agent who’s an expert on the neighborhoods you’re interested in. When you work with a Better Real Estate agent you could save $2,000 on closing costs if you choose to finance with Better Mortgage.*
Knowing the property taxes in the neighborhoods you’re looking at can help you decide where to live. Knowing which homes suit your monthly budget can help you decide which home to buy. In as little as three minutes, you can get pre-approved with Better Mortgage. And with our pre-approval letter in hand, you’ll show agents and sellers you’re ready to make a move on the home that’s right for you.