Understanding Property Tax Calculations

Understanding Property Tax CalculationsUnderstanding how your property taxes are calculated may sometimes feel like the unraveling of a deep mystery.  However, it’s vitally important that you understand this tax if you are a homeowner, since it is a large expense that you will most likely pay throughout your lifetime.

Property taxes can vary between different parts of the country and even between different parts of the same municipality.  So let’s examine the ways that property taxes work and how they may not be the same for everyone.

Tax on Real Property versus Tax on Personal Property

When you hear the term property taxes, what it really refers to is “real property” tax.   “Real property” by definition is all the land you own and everything permanently affixed to it.  For example, your home, an attached or detached garage, a shed on a permanent foundation, and any other permanent structures are considered your “real property.”

“Personal property,” on the other hand, is basically anything else that you own (with or without a title) that can be moved.  This would be things like your fishing boat, your car and of course your home furnishings.   Manufactured homes not on a permanent foundation are also considered personal property and not “real property.”

Let’s Unpack the Layers of Your Property Taxes

Most people know that their property taxes are calculated based on the value of their real property, but many homeowners do not realize that what we all generally refer to as “property tax” actually involves several different taxes rolled into one.

Your home could be located in several intersecting tax jurisdictions, and these can vary from area to area.  Here are the tax jurisdictions that homeowners most often encounter:

  • State
  • County
  • City
  • School district
  • Fire district
  • Cemetery district
  • Library district

Each of these jurisdictions will have their own tax rate, possibly making the calculation of your property taxes somewhat confusing.  The value used to determine your taxes is not your home’s appraised value but the assessed value.

The Positive Side of Assessed Values

Property tax assessments are often a confusing concept for new homeowners.  However, learning about them will help you understand your property taxes. The assessed value is what your taxes are based on, but there is no set way for any tax jurisdiction to determine this number.

In some areas, your property’s assessment and your home’s market value may be more or less the same.  But in other areas, the assessment could be a stated percentage of the market value.  In addition, these values might be updated on a yearly basis, every other year, or only when the home is resold.  If you meet certain requirements, you can have your assessment frozen so your taxes only increase if the rate itself increases.

Put another way, knowing how your property assessment works is key to understanding it.  Without it, all the layers of government taxes draining your bank account are pretty meaningless.  It is a good idea to call or stop in at your local tax assessor’s office to get a detailed explanation of your specific tax situation since it can vary for each individual homeowner.

Have You Heard of a Mill Levy?

You may or may not have seen the term “mill levy” if you’ve been reading up on property taxes.  A mill levy is simply another way to describe the tax rate which is being applied to your real property’s assessed value.  One mill is equal to one dollar per thousand of the real estate’s assessment, or 1/1,000 of a penny.  Your local tax authorities are the ones who set the mill rate.

Here is an example of a mill levy:  If your property is assessed at $250,000 and your county mill levy is 5, then for every $1,000 of assessed value your bill goes up $5 or $1,250.  Remember, though, this is just one layer of your taxes.  You’ll need to add all the layers together to get your total tax bill.

Consult your most reliable source for tax information by seeking out a local CPA, a home appraiser,  or even a mortgage professional.  They can help you make more sense out of your tax bill if you are finding it confusing.  Contact me anytime for assistance as well.

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