Understanding How to Calculate Property Taxes

There are many upsides to owning a home vs. paying rent to a landlord. Most people still have a strong affinity for becoming a homeowner. It usually starts at an early age and continues to increase as you get older.

By graduating high school, you may be looking forward to becoming an adult. Part of that process is getting out on your own and eventually purchasing a home. Many will start by renting a house first.

While homeownership has many upsides, including independence, a good long-term investment, a place to call your own, and tax breaks, there is also one significant downside.

You must pay the government every year through real estate taxes. Real estate taxes are a big financial burden for many homeowners. Understanding how the real estate tax system works can help you make informed decisions about paying your taxes.

What Are Real Estate Taxes?

Real estate taxes are paid on the ownership of property. This can include residential, commercial, and agricultural property. Real estate taxes are usually collected locally based on the property's value. It is referred to as a tax assessment.

As a homeowner, it is essential to understand how a property tax assessment works.

Each jurisdiction has its own set of rules and regulations for calculating and collecting real estate taxes. Generally, the property's assessed value calculates the taxes to be paid.

A local government assessor determines this assessed value, usually based on the property's estimated market value.

In addition to the assessed value, various exemptions and deductions may be applied to the calculation of the real estate tax.

These can include exemptions for certain property types, such as homesteads or owner-occupied dwellings, and deductions for certain expenses, such as property improvements or charitable contributions.

Real estate taxes are typically collected annually and are due by a deadline. Late payments may result in the accrual of interest and penalties.

Real estate taxes provide an important source of revenue for local governments. The money collected funds various public services, including schools, parks, police and fire protection, and other public infrastructure.

Understanding the real estate tax system is essential to ensure you are paying your fair share.

How Are Real Estate Taxes Calculated?

Real estate taxes are calculated using the local tax rate multiplied by the property's assessed value. The local government sets the tax rate, usually expressed as a percentage. The assessed value is determined by a local assessor based on the property's estimated market value.

The municipality or county typically sets the local tax rate. It is a percentage of the property's assessed value that the owner must pay in taxes each year.

The assessed value is the estimated market value of the property. The assessor will compare the property's current market value to similar properties in the area. The assessor will then make an estimate of the value of the property based on these comparisons.

Once the local tax rate and the assessed value are determined, the amount of real estate taxes due can be calculated. The amount of taxes due is the local tax rate multiplied by the property's assessed value.

For example, if the local tax rate is 1.5% and the property's assessed value is $400,000, then the real estate taxes due would be $6,000 ($400,000 x 1.5%).

Understanding how real estate taxes are calculated can help you make informed decisions about your property taxes. Knowing the local tax rate and the assessed value of your property can help you budget for and plan for future payments.

It can also help you determine if you are eligible for exemptions or deductions that may reduce your tax burden.

How Does a Real Estate Assessor Determine the Assessed Value of Homes?

A real estate assessor determines the assessed value of homes and other properties. This value is used to calculate the amount of taxes due.

The assessor begins by gathering information about the property, such as its age, size, location, condition, and features. They will also look at comparable properties to determine the home's market value.

The assessor will then assess the property to determine its estimated market value. This is done by considering the improvements, the amount of land, and the property's condition.

Once the estimated market value is determined, the assessor will use this value to calculate the assessed value.

The assessed value is then used to calculate the real estate taxes due. As mentioned, the value is determined by multiplying the assessed value by the local tax rate.

Understanding how a tax assessor determines a home’s assessed value is critical for homeowners. This can help homeowners budget for their taxes and understand their tax liability.

Knowing that a real estate appraisal is not the same as your assessed value is essential. Don't assume the assessor will arrive at anywhere near the appraised value. They often don't.

You should also not look at a Zillow home value and assume that is commensurate to either your assessment or appraised value.

Many owners make these mistakes.

What Happens When You Don't Agree With Your Tax Assessment?

Sometimes, you may feel you're not paying a fair amount of taxes. You may see what your neighbors are paying for a similar home, and it doesn't seem right.

When this happens, you will need to challenge the tax assessment. Since there is a fixed tax rate, you will be challenging the assessed value.

To do this, you will need to do one of two things - either show that the information on hand is incorrect or that the comparable sales are inappropriate.

You may need the help of a real estate agent or appraiser to help find appropriate data. Once you have what you need, you must meet with the local assessor and state your case.

Sometimes the value with be changed, and others, it won't. When unsuccessful, you must bring your case to the state tax appellate board for a ruling.

Final Thoughts on Real Estate Taxes

Understanding real estate taxes are essential. Knowing how to check your assessment and the taxes you pay vs. others is worth knowing. You may find what you're paying doesn't make sense.