US Real Estate Property Tax Calculator Homebuyers will pay property taxes when buying a home and annually thereafter. Both homeowners and real estate investors need to use a property tax calculator to determine how much they will pay. These real estate property taxes help pay for local and state services. A US real estate property tax calculator enables a more accurate understanding of property owners’ tax obligations. So, how are real estate taxes calculated? Let us discover the answer together. What are the basics? How is it calculated? Real estate property taxes in the US are collected by local governments and are usually based on the value of a property. The revenue supports community schools, infrastructure and other public projects. When you buy a home in the US, you need to factor in real estate property taxes as an ongoing cost. This is when a calculator will help you budget your outgoing costs. Property taxes generally increase over time as a home increases in value. US real estate property taxes are not regulated by the federal government but are based on state and county tax levies. Property taxes in the US are based on where you live and the value of your real estate. Have you used a calculator recently to see how much your fees will be? In some areas of the US, the annual property tax bill may be less than one month’s mortgage payment. It can be as high as three to four times the monthly mortgage cost in other areas. With US real estate property taxes being so dependent on location, most homebuyers consider this factor when deciding where to live. Many areas with high property taxes have superb amenities, such as good schools. A region’s cities, counties and school districts can levy taxes against the properties within their boundaries. US real estate property taxes are calculated separately for each jurisdiction. All the levies are added together to determine an entire region’s total tax rate (or mill rate). US property taxes are calculated by multiplying the mill rate by the assessed value of a property. Get your calculator out to find out what your mill rate is. The market value of a property is assessed by using one or a combination of three methods in the US: performing a sales evaluation, the cost method, and the income method. The market value is then multiplied by an assessment rate to arrive at the assessed value. How is property tax calculated and levied? How is property tax calculated? State, county, and local governments levy US property taxes on real estate. Property taxes are one of the oldest forms of taxation in the US. While some US states do not levy an income tax, all states have property taxes. While some US states provide state funds for county projects, others leave counties to levy and use taxes fully at their discretion. This means funding all county services through real estate property taxes. It is time to get your calculator to work to see how much you will pay. How is it assessed? US property taxes are calculated using the value of the property. Have your calculator at hand so that you can follow the property tax example. This includes both the land and buildings on it. Tax assessors will value a property every one to five years and charge the owner the appropriate rate following the standards set by the taxing authority. If a property’s assessed value is $200,000, but the market value is $250,000, then the assessment ratio is 80%. The property’s market value multiplied by the assessment ratio in an area gives a property’s assessed value for tax purposes. The assessment of a property will depend on a county’s practices. It is common for appraisals to occur once a year, every five years, or somewhere in between. The process can become complicated. In some US states, an assessed value is equal to the current market rate of a property. The assessor determines this by comparing recent sales of similar properties. In other states, the assessed value is way below the market value. The millage rate is the amount per $1,000 assessed value levied in property taxes. Millage rates are expressed in 10ths of a penny, meaning one mill is $0.001. On a $300,000 property, a millage rate of $0.003 will equal $900 in real estate taxes owed. ($0.003 x $300,000 assessed value = $900) It is also important to take the assessed value of a property and subtract any appropriate exemptions for which you are eligible to then get an adjusted taxable value of your property. That taxable value is multiplied by the sum of all applicable millage rates. All the separate tax levies are added and then applied to your taxable property value. The number you calculate (millage multiplied by taxable value) tells you the real estate property taxes owed before any credits. Tax credits are different to exemptions and are not universally available. These credits are subtracted from any taxes you might owe. Once you find that number, you have your total real estate property tax bill. How you pay your US property taxes varies. Some 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. Have you used a property tax calculator yet? Are there any exemptions? There are four common US real estate property tax exemptions, classified: * Homestead * Persons with disabilities * Senior citizens * Veterans/disabled veterans Most states and counties include certain property tax exemptions beyond the full exemptions granted to religious or non-profit groups. These specialized exemptions are usually a reduction of up to 50% of taxable value, but rates vary by location in the US. Some US states offer real estate property tax exemptions as an automated reduction without any participation by the homeowner if the property is a primary residence. Other states and counties require applications and proof for specific exemptions, such as a homeowner who is a disabled veteran. Ways to assess US property value An assessor can estimate the market value of a property by using three different methods, with the option of choosing a single one or any combination of the three. Performing a Sales Evaluation The assessor values the property using comparable sales in the area. Criteria include location, the state of the property, any improvements, and overall market conditions. The assessor then makes adjustments in the figures to show specific changes to a property, such as new additions and renovations. Cost Method This is when an assessor determines property value based on how much it would cost to replace it. If the property is older, an assessor determines the amount of depreciation that has taken place and how much a property would be worth if it were empty. An assessor deducts any realistic depreciation for newer properties and looks at the cost of buildings, materials and labour. These figures are included in the final value of the property. Income Method This method is based on how much income the property owner could make from the real estate if rented. The assessor considers the costs of maintaining the property, managing it, insurance and taxes, and the return that could be reasonably anticipated from it. Assessed Value After determining the market value of a property, the assessed value will be arrived at by taking its actual value and multiplying it by an assessment rate. That rate is a uniform percentage, which varies by each jurisdiction. After getting the assessed value, this is multiplied by the mill levy to determine the real estate property tax due. Once the assessor has the value, they work in two stages. First, they send the assessed value of the property to the owner. Then, they follow it up with a property tax bill. Have someone sit with you to go through the property tax calculation. Have two calculators at hand to double-check the results. Example of US real estate property tax calculation The real estate calculation process is complicated and varies by state or county. It is best to consult your local state and county websites to determine how real estate property taxes are assessed. A general example of how real estate taxes are calculated is: Property taxes are noted as mill rates. A mill rate is a tax paid per $1,000 of a home’s value. For every $0.001 mill rate, you will pay $1 for every $1,000 in home value. Find out your county’s mill rate and divide it by 1,000. Next, multiply your home’s assessed value by the mill rate, which is your property tax liability. If your area’s mill rate is 8.5 and your home’s assessed value is $200,000, you would do the following: 8.5/1000 = $0.0085 $200,000 x $0.0085 = $1,700 You would owe $1,700 real estate property tax per year. Test your knowledge and use your calculator to see if you understand these complex calculations.
