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Understanding and Calculating Property Tax

Paying taxes is an unavoidable part of life, and it’s essential for providing public services such as funding schools, roads, and other infrastructure. One type of tax that many property owners are familiar with is property tax.

In this article, we’ll take a closer look at how this tax works, what it’s used for, and how it’s calculated.

What is Property Tax and How Is It Used?

Property tax is an ad valorem tax calculated based on the assessed value of real property (such as land and structures). This levy is separate from income taxes, and the rate at which it is applied can vary by locale.

At its core, property tax moves money from homeowners to county governments to fund public services such as those provided by schools and libraries. 

When assessing how much each taxpayer will pay, assessors utilize various factors including, but not limited to, the size of the home or business and its associated fair market value. Different jurisdictions may also extend special exemptions or discounts that allow some properties to be taxed at a lower rate than what would otherwise be imposed.

Real estate transactions are subject to property tax as well. Typically, when owners buy or sell a home, they must use their personal funds to pay this special levy. That said, banks may cover these costs if mortgages are involved. 

It’s important to note that real estate taxes differ from property taxes in that property taxes are levied more generally against any item of personal or business property. Property taxes can encompass things like boats, cars and other tangible items beyond just land and buildings.

How Do You Pay Property Tax?

Property taxes are usually paid annually through mail or in person at a local Tax Office; certain areas may also offer a convenient online payment option via credit card or electronic check. 

Depending on your locality’s payment schedule, you may be expected to make semi-annual payments. Fortunately, it’s possible not only to pay but also to track your tax bill online in many instances. This makes it easier to stay current with whatever additional fees have been added due to late payments or otherwise.

How Do You Calculate Property Tax?

To calculate a property tax bill, assessors typically use the current assessed value of one’s home or business and multiply this number by the current millage rate (i.e., how much a homeowner pays per $1,000 of their property’s assessed value). This total is then divided by 1,000 to arrive at an estimate for one’s yearly tax bill.

For example, if your home  is assessed at $150,000 with a millage rate of 12.3%, your annual tax bill would look something like this:

($150,000 x 12.3%) / 1,000 = $1,845

It’s important to note that some counties may also offer exemptions for certain types of properties or individuals that could reduce your overall tax burden. Additionally, many counties offer payment plans or other forms of assistance for those who are unable to pay their full amount due at once.

What Types of Properties Get Taxed?

Property tax is imposed on any type of land and structures such as residential and commercial buildings and mobile homes, as well as the improvements (e.g., pools) made on them.

Businesses may also have to pay taxes on their personal property; this includes things such as furniture, office equipment, supplies and inventory as well as intangible assets like rights and trademarks. When valuing these items for taxation purposes, assessors consider their original purchase price minus depreciation regularly incurred through normal wear-and-tear (such as accumulated weather damage to a house).

Additional taxes may also be levied against businesses for them to pay for services provided by public institutions like schools and libraries.

How Is Property Tax Assessed?

Property tax bills vary from county to county and depend on the applicable exemptions. Property owners can pay their property taxes online, by mail, or in person. When paying online, there may be a convenience fee associated with the transaction. Additional taxes may also be levied for public schools and special districts. Payment options include electronic check, credit card, or debit card.

When searching for property tax information, it is important to note that the address of the property must be known to determine the correct taxes owed. The assessor’s office can provide additional information regarding a property’s assessed value and applicable exemptions. The tax rate is then calculated based on this information and any additional levies that have been filed with the county treasurer’s office. Once all fees are paid, a lien will be placed on the property until all taxes are paid in full.

FAQs about Property Tax

What is a property tax bill?

A property tax bill is an invoice sent by the local government to the owner of a property. It outlines the amount of money due in taxes for that year, based on the assessed value of the property. The bill may also include other fees or charges related to the assessment or collection of taxes.

How are property taxes calculated?

Property taxes are usually calculated as a percentage of the assessed value of a property. This percentage varies from one jurisdiction to another, but it’s typically between 1-3%. The assessed value is determined by an appraiser who looks at factors such as location, size, condition, and amenities when determining its worth.

How often are property taxes due?

Property taxes are usually due once per year, although some jurisdictions may require quarterly payments. The exact date that they’re due will vary depending on where you live. Be sure to check with your local government for more information about their specific policies.

Who is responsible for paying property taxes?

The owner of the property in question is typically responsible for paying property taxes. However, in some cases (such as when there’s an outstanding mortgage), lenders may be responsible for making sure that these payments are made on time.

What happens if I don’t pay my property taxes?

If you fail to pay your property tax bill on time, you may be subject to late fees or penalties imposed by your local government. In extreme cases (such as if you have unpaid back taxes), they may even take legal action against you or place a lien on your home until all outstanding amounts have been paid in full.

Property Tax in Summary

Property taxes are an important source of revenue for local governments and are used to fund a variety of public services, from schools to libraries. Property owners should familiarize themselves with their local laws and regulations so that they understand the details of their property tax bills and get them paid in full and on time each year. Failure to do so could result in penalties or even legal action.

Anthony Pinto
Anthony Pinto
Anthony Pinto is the founder and CEO of Pinto Capital Investments (PCI), a real estate investment firm focused on acquiring affordable and workforce multifamily properties and apartment buildings through syndications. Since 2019, PCI has gone full cycle on 2 large apartment complexes (+100 units) with an IRR in excess of 85%.