How does property tax work

Here is a list of our partners and here's how we make money. 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. Generally, property taxes go to the local government in order to fund school districts, police and fire departments, road construction and other local services.

Failing to pay your property taxes 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. 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. Here's what goes into determining the two components of your tax bill. 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.

By how much less will vary by location, but it's common. Cars, machinery and other property might be subject to personal property tax.

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. 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.

If successful, your appeal could result in a lower property tax bill. Make sure the assessment data is accurate and matches with the details of your property. 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. Aim to show that homes with similar tax values are better than yours. Start by discussing your findings by phone or in person. Our home affordability calculator will show how much house you can really afford to buy.

Get personalized mortgage rates from top lenders or see how much refinancing can save you. Typically, there are two ways to pay the bill:. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile.

Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. In fact, the earliest known record of property taxes dates back to the 6th century B.

In the U. While some states don't levy an income tax, all states, as well as Washington, D. For state and local governments, property taxes are necessary to function. They account for most of the revenue needed to fund infrastructure, public safety and public schools, not to mention the county government itself.

You may have noticed already that the best public schools are typically in municipalities with high home values and high property taxes. While some states provide state funds for county projects, other states leave counties to levy and use taxes fully at their discretion.

For the latter group, this means funding all county services through property taxes. To get an idea of where your property tax money might go, take a look at the breakdown of property taxes in Avondale, Arizona. You can see that Maricopa County takes a cut, as do local school districts and colleges, the library and the fire department. While this shows a specific example, you may not find the same breakdown of tax levies where you live.

Your property tax bill often depends on county budgets, school district budget votes and other variable factors that are distinct to where you own property. Let's define a couple of key terms before we get into the details of how property taxes work. First, you must become familiar with the "assessment ratio.

The market value of your home multiplied by the assessment ratio in your area equals the assessed value of your property for tax purposes. Wondering how the county assessor appraises your property? The process can sometimes get complicated. In a few states, your assessed value is equal to the current market rate of your home. The assessor determines this by comparing recent sales of homes similar to yours. In other states, your assessed value is thousands less than the market value.

Another crucial term to understand is millage rates. To put it all together, take your assessed value and subtract any applicable exemptions for which you're eligible and you get the taxable value of your property. That taxable value then gets multiplied by the sum of all applicable millage rates. As you can see in the Avondale example above, each school district has its own millage rate.

All the separate tax levies are added and then applied to your taxable value. The number you calculate millage multiplied by taxable value tells you the property taxes owed before any credits.

These credits are subtracted from any taxes you might owe. Once you find that number, you have your total property tax bill. How you pay your property taxes varies from place to place. Some people pay extra each month to their mortgage lender. The lender keeps that money in escrow and then pays the government on behalf of the homeowner. Other people pay their property tax bill directly to the county government on a monthly, quarterly, semi-annual or annual basis.

Your payment schedule will depend on how your county collects taxes. Most states and counties include certain property tax exemptions beyond the full exemptions granted to religious or nonprofit groups.

However, rates can vary by location. Some states offer exemptions structured as an automatic reduction without any participation by the homeowner if your property is your primary residence. The millage rates would apply to that reduced number, rather than the full assessed value.