Both Benjamin Franklin and Mark Twain are often given credit for making a famously pithy remark about the certainty of death and taxes. Oddly enough, this bit of wisdom predates both of these celebrated Americans. According to Shmoop, the earliest known version probably appeared in British playwright Christopher Bullock’s The Cobbler of Preston in 1716 with this line: “‘Tis impossible to be sure of any thing but death and taxes.” If you’re a new homeowner, you may be wondering about the property taxes that come with your new digs. After all, your mortgage isn’t the only payment that you need to worry about making. How is property tax calculated?
How Is Property Tax Calculated?
Property taxes are ubiquitous, but the ins and outs of how they are calculated will vary a bit depending on where your property is located. That said, mastering a few basic concepts can give you a head start in figuring out how your property tax is calculated. For starters, MillionAcres points out this foundational fact: your property tax equals the taxable value of your property multiplied by the appropriate tax rate. Once you understand a bit about how the taxable value of your property and your tax rate are determined, it’s easier to figure out how they come up with the numbers on your tax bill.
Property taxes are generally calculated by value, so the value of your property will obviously be a factor in how much you owe. However, your home’s market value and its assessed value for tax purposes aren’t always the same. In fact, your home’s assessed value will often be less than its market value. As The Balance explains, homes are generally assessed every one to five years using one of the following methods:
- Sales Comparison: The assessor will compare your home to properties that have recently sold in the area to arrive at a value.
- Cost: The assessor will calculate how much it would cost to build your home, including materials and labor. They’ll also include the value of the land. Then, they’ll account for depreciation.
- Income: The assessor estimates how much income you might expect if the property was rented out. This method is typically used for commercial properties.
Calculating Property Taxes
As Investopedia reports, the mill levy is the tax rate levied on your property. Here, a mill equals $0.001. For every $1000 of assessed property, one mill equals $1. What does that mean for your wallet? That depends on where you live and what the mill levies are that impact your property. Each state, county, city, and school district has the power to levy taxes on the properties that are located within their boundaries. At tax time, each entity calculates its own required mill levy. Then, they are tallied together to calculate the total mill levy due against a property. Imagine that you live in a county with a mill levy of 4 percent, a city with a mill levy of 2 percent, and a school district with a levy of 1.5 percent. The total mill levy for your region would be the sum of those numbers, which works out to 7.5 percent. How is property tax calculated for your home? Using the formula mentioned above, you’d multiply the assessed value by the total mill levy. Fortunately, the math is normally already done for you when your tax bill arrives.
Property Tax Exemptions
According to SmartAsset, many states and counties offer exemptions for special circumstances that can reduce your property tax bill. While the rates differ depending on the location, they often shave up to 50 percent off the taxable value, which can reduce your tax bill significantly, making it easier and more affordable to stay in the home. The most common options include the homestead exemption and exemptions for senior citizens, persons with disabilities, and veterans or disabled veterans.
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