Mortgage Daily Logo

How Are My Property Taxes Calculated and How Do I Pay

Appraisal

Homeownership comes with lots of new expenses and increased fees, like homeowner’s and title insurance, pricier utility bills, and property taxes.

Even if you’re prepared for higher bills, it’s important to know exactly how much they’ll spike up. Especially when it comes to property taxes.

Calculating your property taxes probably isn’t your idea of a good time. Plus, your local government will figure it out for themselves and automatically charge you.

But the tax assessor can sometimes get it wrong and overvalue your house. What does this mean for your taxes? That you’re overpaying.

That’s why it’s worth understanding exactly how property taxes are computed and getting a general idea of how much you’ll owe.

 

What Is Property Tax?

Property tax is a tax paid on the property by the individual owner.

It is known as an “ad valorem” tax, which is Latin for an “according to value”. In other words, property taxes are based on an assessment of the property’s value.

Your local government will consider the location, assess the overall worth, and apply a tax amount accordingly.

 

What Do Property Taxes Pay For?

Your property taxes will go towards things needed to fund the local community, like school districts, libraries, road construction, police and fire departments, and other services.

It’s a major source of income for the city or county. Sometimes your tax bill will specify exactly what your property taxes are going toward.

Assess Your Property’s Value

The local tax assessor’s office is in charge of tracking every single piece of real estate and land in the district. They will typically keep a database of each property’s value.

Assessors are able to estimate the market value of a property based on three varying methods.

Here’s a breakdown of each.

  1. Sale Comparison

Just as a homebuyer analyzes comparable homes before making an offer, assessors can use similar data to determine the worth of a property. They will analyze criteria like the condition of the property, location, improvements, and overall market trends.

  1. The Cost Method

This is when the assessor determines how much it would cost to replace or build your home from the ground up. Everything is included in this calculation, i.e., materials, labor, and other items that add to the home’s definitive value. They assessor will also take depreciation into account for older homes.

  1. The Income Method

This tactic is used to determine how much of an income would be made if the property were rented out. It’s important to note that the income method is primarily used for commercial properties. The assessor will consider factors like cost of maintenance, management of the property, insurance, current rental rates, and the return on investment.

 

Leverage Your Appraisal

Keep in mind – you’ve just purchased this house and probably received an appraisal of the property’s fair market value. This is a valid number to use when determining what your property taxes may cost.

But assessments usually happen annually, meaning your property taxes could go up next year. You can then use the methods listed above to get a general idea of your home’s newly assessed value.

How Property Taxes Are Calculated

Taxes are calculated by multiplying the property’s value by the tax rate.

Property tax = property value x tax rate

So, how do you figure out the tax rate? Stick with us here, this may get a little confusing.

The rate is often called a “millage rate” or a “mill rate”. One mill equals one-thousandth of a dollar, or $1 for every $1,000.

Keep in mind – local governments charge different mill rates.

 

Here’s a hypothetical:

The local mill rate is 20 mills. This means the homeowner will pay $20 for every $1,000 of the property’s value, or 2%.

The property was assessed at $100,000. Multiply the property’s assessed value by the mill’s rate percentage. In this case:

$100,000 x 2% = $2,000 of property taxes owed per year.

 

How to Grieve Property Taxes

As mentioned earlier, sometimes assessors can get it wrong. If you think your home’s assessed valuation was high, you can grieve the property taxes.

To do this, you’ll need to prove that the assessed value does not correctly portray the property’s true market value.

First, you should make a list of comparable sales and their tax records. This is public information and can be seen on the local tax assessor’s website. The goal is to show similar homes are valued lower than yours and therefore have lower taxes.

You can bring these findings to your assessor’s office to dispute the process. This can also be done through a lawyer, who will appeal the property’s taxes on your behalf. Typically, they only charge you a fee if they win the claim.

 

How to Pay Property Taxes

There are two ways to pay your property taxes.

First, you can choose to pay the taxes as a part of your monthly mortgage payments.

Or you may opt to pay them in a larger sum, annually or semi-annually. The check should be delivered directly to the local tax authority. This method is more commonly used among homeowners who do not have a mortgage on the property.

Related Posts

Benefits of a Home Appraisal

Benefits of a Home Appraisal

A home appraisal inspection is not the same as a home inspection. The home appraisal inspector works for the bank that will be lending you the money to purchase your new home. The main reason an inspection is required is that the bank wants to ensure that the money...

Understanding Your Home Inspection Report

Understanding Your Home Inspection Report

How to read a home inspection report? A home inspection report, especially on an older home can be quite extensive. It usually carefully designed to be clear, easy to understand and helpful to the buyer. The home inspection report is an overview of conditions...

What Does a Home Inspector Do?

What Does a Home Inspector Do?

A home inspection report is very different from a home appraisal inspection. Inexperienced real estate salespeople sometimes do not understand the difference. Although real estate professionals that have worked in the mortgage industry and decide to shift into sales,...

Home Inspection vs Appraisal

Home Inspection vs Appraisal

Difference Between Home Appraisal and Inspection People often confuse home appraisals with home inspections, and even some unseasoned real estate brokers can confuse the two roles these two very different individuals are responsible for. Even the education and...

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming paperwork has been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and furniture need to...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand-new mortgage loan can be a difficult task, especially for first-time homeowners.   After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first...

Newsletter

Don’t worry, we don’t spam