Understanding Property Taxes
Property tax is a local tax based on the value of your home. It funds schools, roads, police, fire departments, and other local services. Unlike income tax which is the same everywhere, property tax varies significantly by location.
How Property Tax is Calculated
The basic formula is:
Property Tax = (Assessed Value - Exemptions) × Tax Rate
- Assessor determines your home's market value
- Assessment ratio is applied (some states assess at less than 100%)
- Exemptions are subtracted from assessed value
- Tax rate (mill rate) is applied to taxable value
- Special assessments may be added
Understanding Mill Rates
A mill is 1/1000 of a dollar, or $0.001. A mill rate of 25 means you pay $25 for every $1,000 of taxable value.
| Mill Rate | Per $1,000 | Per $100,000 | Per $350,000 |
|---|---|---|---|
| 10 mills | $10 | $1,000 | $3,500 |
| 20 mills | $20 | $2,000 | $7,000 |
| 30 mills | $30 | $3,000 | $10,500 |
| 40 mills | $40 | $4,000 | $14,000 |
Effective Tax Rate
Common Property Tax Exemptions
Homestead Exemption
Available to homeowners who use the property as their primary residence. Reduces taxable value by a fixed amount (e.g., $50,000 in Florida).
Senior Citizen Exemption
Additional exemption for homeowners over a certain age (often 65+). May require income limits.
Veteran/Disabled Veteran
Exemptions for military veterans, with larger exemptions for those with service-connected disabilities.
Other Exemptions
- Disability exemption
- Agricultural use
- Historic property
- Solar/renewable energy
- Low-income homeowner
Apply for All Exemptions
Property Tax by State
| State | Effective Rate | Tax on $350K Home |
|---|---|---|
| New Jersey | 2.21% | ~$7,735 |
| Illinois | 2.08% | ~$7,280 |
| Texas | 1.68% | ~$5,880 |
| California | 0.71% | ~$2,485 |
| Florida | 0.82% | ~$2,870 |
| Colorado | 0.51% | ~$1,785 |
| Hawaii | 0.29% | ~$1,015 |
National average is approximately 1.1%
State Averages Can Be Misleading
Appealing Your Assessment
If you believe your home is overvalued, you can appeal:
- Review your assessment notice carefully
- Compare to similar homes in your area
- Gather evidence (recent sales, appraisals, photos of condition issues)
- File an appeal by the deadline (often 30-90 days)
- Attend the hearing with your evidence
- Consider hiring a property tax attorney if stakes are high
When to Appeal
Special Assessments
Beyond regular property taxes, you may face special assessments for:
- Road improvements or repairs
- Sewer or water system upgrades
- Sidewalk construction
- Street lighting
- Landscaping in common areas
- Flood control projects
These are often temporary but can be significant. Check before buying!
Property Tax and Your Mortgage
Escrow Accounts
Most lenders require an escrow account where 1/12 of your annual property tax is collected with each mortgage payment. The lender then pays the tax bill when due.
Why Banks Require Escrow
- Ensures taxes are paid (unpaid taxes become liens)
- Protects lender's collateral
- Helps homeowners budget
Escrow Shortages
Frequently Asked Questions
Q: When are property taxes due?
A: Varies by location. Common schedules are annual, semi-annual (June/December), or quarterly. Check with your local tax collector.
Q: Can property taxes go down?
A: Yes, if home values decline or you successfully appeal. However, they typically increase over time due to rising home values and local budget needs.
Q: Are property taxes tax-deductible?
A: Yes, but limited. The SALT deduction (State and Local Taxes) is capped at $10,000 total for property tax plus state income tax.
Q: What happens if I don't pay property taxes?
A: A lien is placed on your property. Eventually, the government can sell your home at a tax sale to recover unpaid taxes. Don't let this happen!
Q: How often is my home reassessed?
A: Varies by location: annually, every few years, or only when sold. Some states cap annual assessment increases (like California's Prop 13).
Q: Do property taxes transfer to new owners?
A: The property transfers free of any outstanding tax debt (the seller must pay). But the new owner inherits the current assessed value (which may reset with the sale in some states).
Planning for Property Taxes
- Know your local tax rate before buying
- Apply for all exemptions you qualify for
- Set up automatic escrow payments
- Review assessment notices annually
- Appeal if assessment seems too high
- Budget for annual increases (typically 2-5%)
- Consider property taxes when choosing where to live
Property tax calculations are estimates. Actual taxes depend on local rates, assessments, and exemptions which change frequently. Contact your local assessor's office for exact figures.