Understanding how property taxes are calculated can be confusing, especially when the amount you pay may be vastly different than the amount homeowners in neighboring towns pay.
What Exactly Are Property Taxes?
Property taxes are based on your property’s value, which includes your home, any other buildings (like a garage or shed), and the land they sit on. Tax assessors determine your tax rate by assessing the value of your property and charging the appropriate rate following the standards set by the taxing authority.
Property tax rates and spending procedures are developed by local government officials. Your property taxes are determined in part by your municipality’s funding needs for things like schools, emergency services, transportation, parks, and libraries.
How Are My Property Taxes Calculated?
The process for calculating your property taxes is twofold - conduct a property assessment and multiply that value by the local tax rate.
A property assessment is completed by a tax assessor either yearly or every five years. The assessor determines the market value of your home in one of three ways.
- Sales comparison: With this approach, the assessor looks at the sale price of recently sold and comparable properties in the area. They then take into account upgrades, additions, or modifications you may have made to your home that would raise its value.
- Cost method: Using this method, the assessor determines what it would cost to rebuild your home from scratch. They will take into account depreciation, building materials, and labor.
- Income method: This approach is typically used for commercial real estate. It is based on the income that could be generated if the property were to be rented.
Local Tax Rate
The assessed value of your property is then multiplied by the local tax rate which is sometimes referred to as a millage rate, mill rate, or mill levy. A mill is equal to one-tenth of one cent which equates to $1 for every $1,000 of a property’s value.
These tax rates vary greatly from one town to another. They’re determined by how much tax revenue a municipality determines it needs. Joe Zimmerman of the Zimmerman Group notes, “A community with a thriving business center and bustling restaurant scene may have lower property taxes than a neighboring community with limited revenue from the licenses and fees associated with these businesses. These communities will need more property taxes to meet their budget’s needs.”
Can I Appeal My Property Taxes?
As a homeowner, it’s essential to stay educated about your area’s billing cycle and the methodology involved in determining your property taxes. You can view your property assessment online or in person at the assessor’s office at the county courthouse.
If you’re moving to a new home and you’re curious about the area’s property taxes your REALTOR® can provide you with valuable information. However, you can also find approximate property tax figures listed by county online.
If you’ve done your research and you feel you’re being overcharged you do have the right to appeal your property taxes. The key to successfully appeal your property taxes is to do so at the assessment stage, not when it comes time to pay your tax bill. While you can take on this process alone, your chances of a successful appeal will increase with the help of a REALTOR® or an attorney.