Property Tax

Explaining Property Taxes

We all know that saying about death and taxes. Well, property tax is one of those things homeowners just have to deal with. It’s an ongoing expense that can tip the scales towards rent in the rent vs. buy decision making process.

Those that have to pay property tax may feel better knowing why they are paying them and how they are being calculated…or maybe not! In any case, here’s some information that will help you get a better grasp on the situation.

How are Property Taxes Assessed?

It’s a good idea to get a clear understanding on how property taxes are assessed. That way you will know whether or not you are being overcharged.

Property taxes are assessed based on the value of the land and the structures on it. The taxes will equal a percentage of the assessed value. If you disagree with the assessed value of your home, you can appeal it.

Tax rates for each jurisdiction are calculated separately. Then they are added together to come up with what’s known as a mill rate. The mill rate is multiplied by the assessed value of a property and that’s how the tax rate is determined.

Property taxes are used by city and state governments to fund things such as education, transportation, parks and recreation and libraries. Cities, counties and school districts have the right to increase property tax within their boundaries as needed.

Understanding Mill Levies

One mill represents one tenth of a one cent. So, for every property assessed at $1000 a mill would be $1.

Tax levies for each jurisdiction are calculated separately, then they are added together to determine the mill rate for the region.

So if the assessed value in a region is $100 million and the county decides it needs $1 million to operate, the mill levy would be $1 million divided by $100 million or 1%.

If the school district and city calculated the mill levy as .5% and 3% respectively, the total mill levy would be 4.5% taking the original 1% as well as the additional 3.5% into account. This would equal 4.5 mills.

Property Assessments

Property assessments are done every five years. There are various methods that can be used to assess property. These are as follows:

·        Sales Evaluation: For this type of evaluation, assessors will compare your home to similar homes in the area to determine an approximate value.

·        Cost Method: This type of assessment is based on how much it would cost to replace your home. For older homes, factors come into play including the amount of depreciation that has taken place and how much your home would be worth if it was empty. For newer homes, potential depreciation is considered as well as the cost of the building, materials and labor.

·        The Income Method: Using this method, your home is assessed by how much money the owner could make if he or she rents the property. Factors taken into consideration include the cost of managing and maintaining the property, insurance and taxes.

Once an assessment value is reached, a set assessment rate is used. Your property value is multiplied by that rate and further multiplied by the mill rate to determine your property tax. So, if your home is assessed at $500,000 and the assessment rate is 8%, that’s $40,000. Times that by a mill rate of 4.5% and you get to a property tax payment of $1800.

Hopefully this article has provided you with a better understanding of your property taxes and will help you determine if you are being charged a fair amount.