How to Calculate Property Tax Without Losing Your Marbles

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Need to know how to estimate your property tax? You’ve come to the right place! Most people know that homeownership requires coughing up copious amounts of money. There’s your mortgage, of course, but the costs hardly end there. You will also have to pay property tax.

If you already own a home, you can look at how your tax is calculated on the most current property tax statement. If you’re considering buying a home, look on the real estate listing for assessment and tax information, or go to the county website to find out the annual property tax.

Be aware that property taxes can change. The assessed value of your house can go up or down, depending on the local real estate market. Your assessment can go up or down depending on changes you make to your house; for example, if you make additions to your property, or even build a new house on land. And the tax rate can change, depending on your local government.

Even though the government sends you a tax bill every year and tells you how much you owe in property taxes, it’s important to know how that tax is calculated.

How to calculate property tax

There are a number of factors that come into play when calculating property taxes, from your property’s assessed value to the mill levy (tax rate) in your area. Here’s how to calculate property tax so you don’t end up blindsided by this hefty homeowner expense.

What is a home’s fair market value?

The market value of a home is basically the amount a knowledgeable buyer would pay a knowledgeable seller for a property, assuming an arm’s-length transaction and no pressure on either party to buy or sell. When a property sells to an unrelated party, the sales price is generally assumed to be the fair value of the property.

What is a home’s assessed value?

One factor that affects your property taxes is how much your property is worth. You probably have a good understanding of your home’s market value—the amount of money a buyer would (hopefully) pay for your place. (You could also enter your address in a home value estimator to get a ballpark figure.)

Still, tax municipalities use a slightly different number; it’s called your home’s assessed value.

Tax assessors can calculate a home’s new assessed value as often as once per year. They also may adjust information when a property is sold, bought, built, or renovated, by examining the permits and paperwork filed with the local municipality.

They’ll look at basic features of your home (like the acreage, square footage, and number of bedrooms and bathrooms), the purchase price when it changes hands, and comparisons with similar properties nearby.

Sometimes a home’s assessed value will be strikingly similar to its fair market value—but that’s not always the case, particularly in heated markets. In general, you can expect your home’s assessed value to amount to about 80% to 90% of its market value. You can check your local assessor or municipality’s website, or call the tax office for a more exact figure for your home. You can also search by state, county, and ZIP code on publicrecords.netronline.com.

If you believe the assessor has placed too high a value on your home, you can challenge the calculation of your home’s value for tax purposes. You don’t need to hire someone to help you reduce your property tax bill. As a homeowner, you may be able to show how you determine that your assessed value is out of line.

What is taxable value?

The taxable value of your house is the value of the property according to your assessment, minus any adjustments such as exemption amounts.

What’s a mill levy?

In addition to knowing your home’s assessed value, you will need to know another number, known as a mill levy. That’s the tax assessment rate for real estate in your area. The tax rate varies greatly based on the public amenities offered and revenue required by local government. If you have a public school, police force, full-time fire department, desirable school districts, and plenty of playgrounds and parks, your property tax rates will be higher than a town without them. (Hey, you get what you’re taxed for!)

Your area’s property tax levy can be found on your local tax assessor or municipality website, and it’s typically represented as a percentage—like 4%. To estimate your real estate taxes, you merely multiply your home’s assessed value by the levy. So if your home is worth $200,000 and your property tax rate is 4%, you’ll pay about $8,000 in taxes per year.

Where to find property taxes

Thankfully, in many cases, you may not have to calculate your own property taxes. You can often find the exact amount (or a ballpark figure) you’ll pay on listings at realtor.com®, or else you can enter a home’s location and price into an online home affordability calculator, which will not only estimate your yearly taxes but also how much you can anticipate paying for your mortgage, home insurance, and other expenses.

Article by Jamie Wiebe