Property Tax: Definition, How to Calculate & Pay in 2020

Your property tax bill is mostly based on your property's location and value. Here's how it works & how to pay.

Tina OremOctober 5, 2020

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What is property tax?

Property tax, sometimes called an ad valorem tax, is a tax on real estate and some other types of property. Local governments typically assess property tax, and the property owner pays the tax. The property tax is usually based on the property location and how much it’s worth.

How property tax is calculated

Property tax is typically determined by multiplying the value of the property by a tax rate:

Property tax = value of the property x tax rate

Here's what goes into determining the two components of your tax bill.

The value of the property

  • Assessors (sometimes called appraisers) who work for the local taxing authority track the value of every piece of land and real estate in a taxing district, such as a city or county. They maintain databases of local property values, often using sophisticated mapping software.

  • Your home’s assessed value will likely be less than its market value. By how much less will vary by location, but it's common.

  • The county may have many ways to detect changes in your home’s value, including inspections, permit applications from a remodeling project, reports from neighbors or regular updates.

  • Cars, machinery and other property might be subject to personal property tax.

The tax rate

  • Real estate tax rates are often based on the "millage rate," where one mill is equal to one-thousandth of a dollar. Your tax rate might not be expressed as a percentage, but rather as some number of mills.

  • For example, if the local property tax rate on homes is 15 mills, homeowners pay $15 in tax for every $1,000 in assessed home value. Accordingly, a house with a $200,000 assessed value would be taxed $3,000.

  • Some taxing authorities apply the tax rate only to a portion of the home value rather than to the full home value. That can reduce the bill.

  • The local taxing authority, again likely your county but possibly your city or town instead, typically determines the tax rate.

What do property taxes pay for?

Generally, property taxes go to the local government in order to fund school districts, police and fire departments, road construction and other local services.

How to dispute a property tax bill

If you disagree with a property tax bill on your home, you can challenge it by challenging your home’s assessed valuation. You’ll need to show that the assessed value doesn’t reflect your property’s true value.

  • Gather comparable listings or ask a real estate agent to pull records of comparable sales for you. Often, tax records are available online from the local tax assessor.

  • Call your assessor’s office to learn the dispute process. Aim to show that homes with similar tax values are better than yours. Start by discussing your findings by phone or in person.

  • If you’re unsatisfied, you might be able to pursue the case with an independent tax appeals board.


Learn more ways to capitalize on your home


How to pay property taxes

Typically, there are two ways to pay the bill:

  1. Write a check or pay online once a year or once every six months when the bill comes from the taxing authority.

  2. Set aside money each month in an escrow account when you pay the mortgage.

Don’t assume you’re paying your property tax when you give money to the escrow company. Think of that as “saving up” for the tax bill. The escrow company uses the money in your escrow account to pay your tax when the bill arrives.

If you're trying to pay property tax online, find tax records, or wondering how much the tax is in your area, check out your home county’s tax assessor website.

Arizona

California

Colorado

Illinois

Minnesota

New Jersey

New York

Texas

What if I don't pay my property taxes?

Failing to pay can result in the taxing authority placing a tax lien on the property. A tax lien is a legal claim against property or financial assets you own or may have coming to you. It’s not a seizure of your assets, but it is a claim on them. If you sell the asset, the government could be entitled to some or all of the proceeds.

Buyers and sellers often discover tax liens on properties by doing a title search.

How to deduct property taxes on your tax return

  • Use Schedule A when you file your return to figure your deduction.

  • You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes.

  • You’ll need to itemize your taxes instead of taking the standard deduction if you want to deduct property tax. It’ll probably take more time to do your taxes if you itemize, but you could end up with a lower tax bill.

  • Don't forget: You can also deduct mortgage interest on your tax return.

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