Property Tax

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Property Tax is the tax you pay on the assessed value of the property that you own. In the United States, property tax is levied by local governments, generally at the municipal or county level, although state law governs the entire process involving appraisal of property value, setting of tax rates and collection of taxes. Local governments use the proceeds from property taxes to finance public schools, fire and police protection, roads, parks, streets, sewer and/or water treatment systems, garbage removal, public libraries, and many other local services. As a result, property tax is deductible from income tax owed to the federal government.

What constitutes Property?

In the United States, property can be any one of the following:

  • Land
  • Improvements to Land, such as immovable man-made objects like buildings and structures
  • Personalty, such as movable man-made objects like vehicles and furniture

Note that property tax is an ad valorem tax. This means it is based on your property's assessed value.

Assessment of Property Value

Local governments that levy property tax use a tax assessor - an appointed or elected public official - to independently estimate the market value of your property. The tax assessor can perform this estimation by considering:

  • the sale prices of similar properties in similar neighborhoods; or
  • the depreciated cost of materials and labor required to replace it; and
  • other factors that might affect your property's market value.

The market value of your property is then used as the basis for calculating its assessed value.

Market Value vs. Assessed Value vs. Taxable Assessed Value

The market value of your property is the amount that an unbiased buyer would pay to acquire it under normal conditions. Your property's assessed value is calculated by multiplying it with the uniform percentage specified for your municipality or county. This uniform percentage can be 5%, 10%, 20% or 50%, so long as it does not exceed 100% and every property in the municipality or county is assessed at the same uniform percentage. After your property's assessed value is determined, its taxable assessed value is computed by subtracting any applicable property tax exemptions.

Calculation of Property Tax

Your property tax bill is determined by two things:

  • your property's taxable assessed value; and
  • the tax rate of the municipality or county in which your property is located.

While the taxable assessed value of your property is determined by a tax assessor, the tax rate applicable to your property is determined by the amount of tax levy that needs to be raised via property tax from a municipality or county.

How is the Tax Levy Calculated?

There are several steps involved in calculating the tax levy. First, your municipality or county develops and adopts a budget. Second, revenues from all sources other than property tax (which could include sales tax, state aid, user fees etc.) are determined. Third, the revenues are subtracted from your municipality or county's original budget. Last, but not least, what remains becomes the tax levy to be raised via property tax.

Property Tax Example

From Market Value to Taxable Assessed Value: If the market value of your property is $100,000 and your municipality is assessing at 35% of market value, your property's assessed value is $35,000. Assuming that you are eligible for $5,000 in property tax exemptions, the taxable assessed value of your property is $30,000.

 Assessed Value = ( 35 ÷ 100 ) × $100,000 = $35,000
 Taxable Assessed Value = $35,000 - $5,000 = $30,000

From Tax Levy to Tax Rate: Assume that your municipality calculates that a total tax levy of $10,000,000 needs to be raised via property tax and that the total taxable assessed value of all property in the municipality is $200,000,000. As a result, the tax rate for your municipality will be 5.0% or $50 for every $1,000 of taxable assessed value.

Tax Rate = ( $10,000,000 ÷ $200,000,000 ) × 100 = 5.0%

From Taxable Assessed Value to Property Tax Bill: Given that your property's taxable assessed value is $30,000 and that your municipality's tax rate is 5.0%, your property tax bill is $1,500.

Property Tax Bill = ( 5 ÷ 100 ) × $30,000 = $1,500

2007 Property Taxes by State

The figures in this table are for property taxes paid by households on owner-occupied housing. As a result, they exclude property taxes paid by businesses, renters and others. All data comes from the 2007 American Community Survey from the U.S. Census Bureau.[1]

“Median Property Taxes Paid on Homes” is the median real estate tax paid on owner-occupied housing units for that state. The home value statistic used is the median value of owner-occupied housing units for that state. The income statistic used is the median household income for those households that are owner-occupied housing units.

State Median Property Taxes Paid on Homes Rank Median Home Value Taxes as % of Home Value Rank Median Income for Home Owners Taxes as % of Income Rank
United States$1,838NA$194,300 0.95%NA$63,059 2.91%NA
Alabama$35250$115,600 0.30%49$50,768 0.69%50
Alaska$2,45212$231,300 1.06%18$80,391 3.05%19
Arizona$1,23235$237,700 0.52%40$60,776 2.03%33
Arkansas$49847$101,000 0.49%44$48,054 1.04%47
California$2,68810$532,300 0.50%43$79,138 3.40%15
Colorado$1,35631$233,900 0.58%36$69,244 1.96%36
Connecticut$4,3323$309,200 1.40%9$83,037 5.22%4
Delaware$1,00140$239,700 0.42%47$66,426 1.51%43
Florida$1,85120$230,400 0.80%26$56,425 3.28%18
Georgia$1,23634$164,500 0.75%29$61,394 2.01%34
Hawaii$1,25032$555,400 0.23%50$80,818 1.55%42
Idaho$1,19736$178,100 0.67%34$54,577 2.19%30
Illinois$3,2037$208,800 1.53%7$67,236 4.76%6
Indiana$1,18538$122,900 0.96%20$57,948 2.04%32
Iowa$1,47029$117,900 1.25%14$56,824 2.59%26
Kansas$1,49928$121,200 1.24%15$59,361 2.53%27
Kentucky$78744$114,300 0.69%32$50,425 1.56%41
Louisiana$18351$126,800 0.14%51$51,721 0.35%51
Maine$1,81621$176,000 1.03%19$54,333 3.34%16
Maryland$2,43613$347,000 0.70%31$84,474 2.88%22
Massachusetts$3,3286$366,400 0.91%21$81,797 4.07%9
Michigan$2,11017$153,100 1.38%11$58,165 3.63%11
Minnesota$1,93419$213,600 0.91%22$66,883 2.89%21
Mississippi$45948$96,000 0.48%45$44,496 1.03%48
Missouri$1,18637$138,600 0.86%23$55,998 2.12%31
Montana$1,39630$170,000 0.82%25$52,116 2.68%24
Nebraska$2,12716$122,200 1.74%2$58,544 3.63%10
Nevada$1,65525$311,300 0.53%39$68,729 2.41%28
New Hampshire$4,3902$261,800 1.68%4$73,267 5.99%2
New Jersey$6,0821$372,300 1.63%5$85,852 7.08%1
New Mexico$79743$155,400 0.51%41$50,833 1.57%40
New York$3,4864$311,000 1.12%17$72,845 4.79%5
North Carolina$1,09839$145,700 0.75%28$55,602 1.97%35
North Dakota$1,50027$106,800 1.40%8$56,109 2.67%25
Ohio$1,79422$137,800 1.30%12$59,150 3.03%20
Oklahoma$72846$103,000 0.71%30$52,009 1.40%46
Oregon$2,05918$257,300 0.80%27$61,690 3.34%17
Pennsylvania$2,15915$155,000 1.39%10$59,543 3.63%13
Rhode Island$3,3625$292,800 1.15%16$74,190 4.53%8
South Carolina$76545$133,900 0.57%37$52,960 1.44%44
South Dakota$1,54226$118,700 1.30%13$54,104 2.85%23
Tennessee$90041$130,800 0.69%33$52,219 1.72%39
Texas$2,22514$120,900 1.84%1$61,346 3.63%12
Utah$1,24933$218,700 0.57%38$65,181 1.92%38
Vermont$3,1888$205,400 1.55%6$59,436 5.36%3
Virginia$1,73324$262,100 0.66%35$72,360 2.39%29
Washington$2,47511$300,800 0.82%24$70,427 3.51%14
West Virginia$44649$96,000 0.46%46$44,120 1.01%49
Wisconsin$2,8969$168,800 1.72%3$62,082 4.66%7
Wyoming$88342$172,300 0.51%42$62,037 1.42%45
District of Columbia$1,79023$450,900 0.40%48$91,777 1.95%37

References

  1. Property Taxes on Owner-Occupied Housing by State, 2007 American Community Survey, U.S. Census Bureau
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