Depending on where you live, property taxes are typically calculated by multiplying the property’s assessed value by the local tax rate. However, the exact process used by your local government will be determined by your state and county.
You can take a closer look at the process in our step-by-step guide below.
1. Determine The Assessed Value Of The Property
Property taxes are based on theassessed valueof your home. An assessor from your locality will determine the assessed value of your home based on the value of similar homes in the area, market conditions and square footage. Some municipalities will order an appraisal of your home to land on an assessed value.
Notably, the assessed value doesn’t match the home’smarket valueorappraised value. Instead, the local government will likely take a percentage of this standardized value to determine the home’s assessed value. The percentage they use is called the assessment ratio or the percentage of the home’s value that’s taxable. The ratios vary drastically around the country.
For example, if your home’s market value is $300,000 and your local government taxes 60% of the value, the assessed value would be $180,000 rather than $300,000. The assessed value will serve as the base for your tax obligations.
2. Deduct Qualifying Exemptions
Most areas offer property taxexemptions. Generally, an exemption makes it easier for homeowners to afford their property tax bill. For some homeowners, the right exemption could lead to having no property tax bill at all.
As a homeowner, it’s worthwhile to scope out any potential exemptions you might qualify for. In the following sections, you’ll find information about some of the most common property tax exemptions:
Homestead Exemptions
Most areas offer ahomestead exemptionor a discount for living in the property full-time. You won’t qualify for this exemption if you use the home as a vacation or investment home.
Senior Citizen Exemptions
Many areas offer a senior citizen exemption which either discounts real estate taxes or freezes them at a specific rate. To qualify, you usually have to be of a particular age and live in the property full-time. This can be especially helpful if you’re on a fixed income.
Homeowners With Disabilities Exemptions
If you’re a disabled homeowner (veteran or not), you may be eligible for an exemption that either reduces your tax liability or eliminates it. Every government has different rules and different exemptions based on the severity of your disability.
Veteran Exemptions
Veterans and active-duty service members who live in a home full-time might qualify for property tax exemptions. Check with your local and state government to see if you qualify for this type of exemption.
3. Apply Your Municipality’s Millage Rate
You’ll typically see property taxes noted as millage rates. A mill rate is a tax you pay per $1,000 of your home’s value. With a $0.001 mill rate, you’ll pay $1 for every $1,000 in home value.
It sounds complicated, but here’s a simple formula. Find out your county’s mill rate and divide it by 1,000. Next, multiply your home’s assessed value (not appraised value) by the mill rate, and that’s your property tax liability.
For example, if your area's mill rate is 8.5 and your home’s assessed value is $180,000, you’d do the following.
8.5/1000 = $0.0085
$180,000 x $0.0085 = $1,530
You’d owe $1,530 in taxes per year. But if you qualified for any exemptions, you might be able to tap into a lower property tax bill. For example, a homestead exemption of $50,000 would lead to an assessed value of $130,000 in our example. In that case, you would owe $1,105 in property taxes each year.
