What is Property Tax?

Property Tax Basics

illustration of a row of suburban homes

Property taxes, part of the cost of homeownership and an inclusion in PITI calculations, are taxes levied by local governments on property owners and are usually based on the value of the property itself. While no one loves having to pay property tax, it typically pays for some very important services, including police, firefighters, water and sewer maintenance, and even public education.

How are property tax rates calculated?

In most areas, homes are assessed, or valued, by a county property assessor. The local taxing authority, often a county government, will determine the tax rate (also called a multiplier). For example, if your home was assessed at $200,000, with a multiplier of 1%, you’d be paying $2,000 in property taxes each year. 

While that seems pretty straightforward, it’s important to realize that the assessed value of your home may not be the same as its estimated value, or what it would sell for on the market. In fact, in some jurisdictions, the assessed value of a home is set at a certain percentage (ex. 10%) of the estimated value. From there, it’s multiplied by another number, called an equalization factor, resulting in the final amount. 

Plus, depending on where you want to buy a home, properties may be only assessed once every 3, 5, or 7 years. If home values have changed significantly during that time period, the assessed value of homes there may take a while to catch up.

How often are property taxes changed?

Typically property tax rates are reassessed on an annual basis, so property taxes for homeowners usually change once a year. Taxes are only assessed on what’s called “real property,” meaning the land and any fixed structures or buildings that are on it. In comparison, personal property items, like electronics, clothes, or cars, are not subject to property taxes.

How often do you pay property taxes?

Usually, property taxes are collected once or twice a year by the local tax authority. Despite that, many people with mortgages have their monthly share of property taxes collected by their lender (along with their mortgage payment) and placed into an escrow account, from which the lender will pay the tax authority at the required times. This makes it easier for borrowers, who don’t have to cough up a large amount of cash once or twice a year, and can instead contribute a smaller amount on a monthly basis.

Can you contest your property tax rate?

If you think you’re being charged an unfair property tax rate, you can technically dispute them (in most areas), but it may be a long and potentially losing battle. In any case, a successful dispute would have to be about the value of the assessed property, not the rate itself -- otherwise, everyone would be complaining in an attempt to get a 0% tax rate! Whatever you do, don’t stop paying your property taxes, even if you are trying to contest them, because if you do, you could have a lien placed on your property.

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