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With the housing market booming around the United States, you may have recently purchased your first home and are curious about what you should know about property taxes.
Property tax is a tax paid on real estate or other types of properties you own. It’s also a type of ad valorem tax, meaning this tax is based on the assessed value of the property. Generally, property tax is based on the location of the property and assessed value of the property.
Property tax is typically assessed and collected by state and local governments on an annual basis. They can vary significantly within a state and even between neighboring counties.
Property tax is typically calculated by multiplying the value of the property by the basic levy rate:
Assessed Value x Levy Rate = Property Tax
For example, if the assessed value of your home is $200,000 and your county levy rate is 2% then your property tax would be $4,000 ($200,000 x .02 = $4,000). Your property tax bill is typically paid annually to your tax assessor or it can be split monthly and paid with your mortgage payment. Your lender will then send the property tax you paid with your mortgage payment to your tax collector.
The assessed value of your property is not to be confused with the price you paid for your home or the price you could sell it for – those are considered the “appraised value” or “market value”. The assessed value of your property is given by the local government’s tax or property tax assessor. This assessed value is typically lower than the market value of the property. This works in your favor since your property tax will then be based on that lower value.
Finding out the assessed value of your property is fairly straightforward. It should be stated on your most recent property tax bill or you can perform a quick search for your property on your property tax collector or tax assessor website.
The levy or tax rates are set by local governments and authorities and will vary depending on where the property is located. Property tax rates can vary significantly within a state and between neighboring towns can be subject to different rates.
It’s possible that your levy or tax rate is expressed as a “millage rate” instead of being expressed as a percentage. Simply stated one “mill” is equal to one-thousandth of a dollar. So if your local property tax rate is 10 mills then you would pay $10 for every $1,000 of the property’s assessed value. So if your home has an assessed value of $200,000 at 10 mills, you would be taxed $2,000 ($200,000 x .010 = $2,000). Sometimes taxing authorities only tax a portion of the assessed value rather than the whole thing to help reduce the tax bill.
It’s important to note that these property tax rates are not permanent and can change. Keep up to date on your county or city’s property tax rate and assessments to avoid a surprising tax bill.
Property taxes are used to fund many services and initiatives that impact everyday life. Property taxes finance local government programs such as police officers, fire fighters, libraries, road maintenance, community pools, and community activities. These services and projects provided by property taxes benefit the community where you live.
The terms property taxes and real estate taxes are often used interchangeably. However, while it is true that real estate tax is a type of property tax – not all property taxes are real estate taxes.
Real estate taxes are only on real property like your home or rental property but personal property taxes are levied on movable personal property like vehicles. Businesses are also required to pay property taxes on personal property they own or lease like machinery, fixtures, office furniture, and equipment.
There are typically two ways that people pay their property tax bill:
Not paying your property taxes can result in the taxing authority placing a tax lien against your property. A tax lien is a legal claim against the property or other financial assets that you own. A tax lien does not take possession of your property but if you were to sell the property, the local government could be entitled to some or all of the proceeds from the sale of the property or asset to cover unpaid property taxes
If you can itemize your deductions (instead of taking a standard deduction) you can deduct up to $10,000 ($5,000 if you are married filing separately) in combined property taxes and either state and local income taxes or sales taxes on your tax return.
Don’t worry about knowing tax rules, TurboTax has you covered and will ask you simple questions and give you the tax deductions and credits you’re eligible for based on your answers.
If you have questions, you can connect live via one-way video to a TurboTax Live tax expert with an average of 12 years of experience to get your tax questions answered from the comfort of your home. TurboTax Live tax experts are available in English and Spanish, year round and can also review, sign, and file your tax return or you can fully hand your taxes over to them.Information from: Turbotax