Property Taxes: What They Are, How They’re Used and How To Calculate Them

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When it comes to tax collection, it would be nice if you were told exactly what you owe without having to do the math on your own. Understanding your personal property tax payments, how your state, city or county uses them, and how to calculate them is essential to managing your finances as a homeowner.  

Read: What To Do if You Owe Back Taxes to the IRS

Quick Take: What Are Property Taxes?

City or state property taxes are fees or real estate taxes that homeowners pay to their local government. These taxes help fund various public services like schools, libraries, roads, parks, fire protection, emergency services and other infrastructure. Essentially, they are a real estate ad-valorem tax, which means the property tax varies as it is derived from the assessed value of your home property or real estate.

Here are some key takeaways:

• What you owe in local property taxes is calculated by your local government where the property is located. 
• It’s typically based on the value of your property which includes the land or even tangible personal property. The assessed value reflects the market value of the property, including the land and any structures built on it
• Improvements in water and sewer use the assessed taxes as do school districts.
• You pay your property taxes based on charges imposed by the tax authority of your local governments if the properties you own are within their jurisdiction. 
• The amount you owe is based on the assessed value of the property, which is determined by local assessors.

How Property Taxes Are Used

Where your federal income taxes go toward a broader scope, your local property taxes play an important role in funding essential public services and infrastructure in communities near you. Five common uses of this tax revenue include:

• Education: This money contributes significantly to funding local public schools throughout your surrounding school districts. This funding helps maintain educational programs, pay teachers’ salaries, and improve school facilities.
• Infrastructure: Revenue is used to build and maintain roads, bridges, and other transportation infrastructure. These investments help improve mobility and access within your community.
• Public safety: Local services use this support for police and fire departments, ensuring the safety and security of residents. This funding helps pay for personnel, equipment, and emergency response services.
• Parks and recreation: A portion of the funds are allocated to develop and maintain parks, recreational facilities, and green spaces. These amenities enhance the quality of life for residents and promote community well-being.
• Community services: Some taxes may also fund various community services, such as libraries, community centers, and social services programs. These services contribute to the overall health and vitality of the community.

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How To Calculate Property Taxes

Sales taxes are generally tabulated for you but calculating property taxes is a bit more involved and varies depending on local tax laws, homestead exemptions, regulations and other property tax liabilities. Take some of these steps to figure out what you’ll need to pay for your tax year:

Step1: Determine Assessed Value

The local assessor determines the property’s assessed value based on factors like its size, location and condition. This assessed value serves as the basis for calculating property taxes. 

Your municipality may hire a tax assessor for local properties which may be an elected official. 

You are basically subject to the rates determined by the municipal government and these tax assessors that assign property taxes to you based on the current market value of your home and surrounding property. This value that is determined from this becomes the assessed value you’ll use to calculate what property taxes you owe. 

Step 2: Apply Tax Rate 

Local governments set a tax rate, also known as a millage rate, which is a numerical multiplier attached to the value of a property and is used to calculate the local property taxes. It represents a dollar per thousand of a property’s assessed value. The tax rate is applied to the assessed value to calculate the property tax bill.

Step 3: Calculate Property Tax

To calculate property taxes, multiply the assessed value or market value of the property by the tax rate. The tax rate is typically recalculated by tax authorities annually. Taxes are also levied on real property which includes primary homes, land, structures, guest homes or other fixed buildings.

Step 4: Consider Exemptions and Deductions

Some jurisdictions offer property tax exemptions or deductions for certain property owners, such as senior citizens, veterans, or individuals with disabilities. These exemptions can lower the overall property tax bill.

What Happens If You Don’t Pay Property Taxes?

The payment schedule and amount of property taxes you owe varies by where you live, if you don’t pay your property taxes your tax bill will continue to accrue interest and penalties, and a lien may be placed against your property. The taxing authority is then able to start foreclosure proceedings on your tax-delinquent property. 

If you feel that you must negotiate your tax bill, for most local property tax codes, there are mechanisms by which you can discuss the assessed tax rate or formally contest the rate. If you have questions, it’s better to reach out to your county or local tax office, but make sure you pay what you owe so you don’t potentially lose your property.

Final Take To GO

The bottom line is that the taxes you pay on the property you own essentially power your local governments. They fund vital public services and infrastructure, but it also helps to know how to calculate them to make sure you don’t receive any financial shocks. By knowing the basics as a homeowner, you can better plan and budget for this important expense while contributing to the well-being of your community.

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