Property Taxes Explained: Know Your Home's Costs

Property taxes are calculated by multiplying your home’s assessed value by the local tax rate (mill rate). If your home is assessed at $350,000 and the tax rate is 1.2%, you pay $4,200 annually ($350/month). Taxes fund local schools, roads, police and fire services. Most homeowners pay through their mortgage escrow account, though you can pay directly if you waive escrow.

How Property Taxes Are Calculated

The Basic Formula

Property Tax = Assessed Value × Tax Rate

Assessed Value

Your home’s assessed value is determined by the local assessor. It may be:

Full market value
A percentage of market value (varies by state)
Based on a formula set by law

Example:

Market value: $400,000
Assessment ratio: 80%
Assessed value: $320,000

Tax Rate (Mill Rate)

The tax rate is set by local government based on budget needs. It’s expressed as:

Percentage (1.5%)
Mills (15 mills = 1.5%)
Dollars per $100 or $1,000 of value

What taxes fund:

Public schools (often 60-70% of property tax)
County services
City/town services
Special districts (fire, library, parks)

Calculation Example

Component	Amount
Market value	$375,000
Assessment ratio	100%
Assessed value	$375,000
Tax rate	1.4%
Annual tax	$5,250
Monthly (for escrow)	$437.50

Property Tax Rates by State

Highest Property Tax States

State	Effective Rate	Tax on $350K Home
New Jersey	2.47%	$8,645
Illinois	2.27%	$7,945
New Hampshire	2.18%	$7,630
Connecticut	2.14%	$7,490
Vermont	1.90%	$6,650

Lowest Property Tax States

State	Effective Rate	Tax on $350K Home
Hawaii	0.28%	$980
Alabama	0.41%	$1,435
Colorado	0.51%	$1,785
Louisiana	0.55%	$1,925
South Carolina	0.57%	$1,995

Note: Rates are averages. Actual rates vary significantly by county and municipality.

How Assessments Work

Who Assesses Your Property

County or municipal assessors determine property values. They consider:

Recent comparable sales
Property characteristics (size, age, features)
Physical inspection (sometimes)
Market conditions

When Assessments Happen

Schedule	States
Annually	Some states
Every 2-3 years	Many states
Every 4-5 years	Some states
Upon sale	Some states base on purchase price

What Triggers Reassessment

Automatic triggers:

Property sale (new value based on sale price)
Major renovation
Addition or improvement
Scheduled reassessment cycle

Not automatic:

Market value decrease (you may need to appeal)
Neighborhood decline
Damage to property

Paying Property Taxes

Through Mortgage Escrow

Most homeowners pay through escrow:

1/12 of annual taxes collected monthly
lender holds funds in escrow account
Lender pays tax bill when due
Adjustments made after annual escrow analysis

Advantages:

Spread payments throughout year
No large lump sum bills
Lender ensures taxes are paid

Disadvantages:

Money sits earning no interest
Less control over timing
Payment changes as taxes change

Paying Directly

If you waive escrow (usually requires 20%+ equity):

You receive tax bill directly
Pay in lump sum(s) when due
Full responsibility to pay on time

Due dates vary:

Some areas: One annual payment
Some areas: Two semi-annual payments
Some areas: Four quarterly payments

What Happens If You Don’t Pay

Short-term:

Interest and penalties accrue
Damage to credit (if reported)

Long-term:

Tax lien placed on property
Tax lien sale (investor pays your taxes)
Eventually: Tax foreclosure (rare, but possible)

Tax liens supersede mortgages. Your lender is very motivated to ensure taxes are paid.

Property Tax Exemptions

Homestead Exemption

Reduces assessed value for primary residence:

Texas: Up to $100,000 off school taxes
Florida: Up to $50,000 off assessed value
Georgia: Various exemptions by county
Many other states offer similar programs

Requirements:

Must be primary residence
Must apply (not automatic in most states)
Deadline to apply (often early in year)

Senior/Elderly Exemptions

Additional reductions for seniors:

Age requirement (often 65+)
Income limits may apply
May freeze assessed value
May reduce or eliminate taxes

Disability Exemptions

For disabled homeowners:

Proof of disability required
May combine with other exemptions
Varies significantly by state

Veteran Exemptions

For military veterans:

Service requirements vary
Disabled veterans often get larger exemptions
Some states exempt 100% for certain veterans

Other Exemptions

Agricultural/farm use
Historic property
Solar/renewable energy
Low-income programs

How to Appeal Your Property Tax Assessment

When to Appeal

Consider appealing if:

Assessed value exceeds market value
Similar homes assessed lower
Assessment increased significantly
Property has damage or issues reducing value
Errors in property description

The Appeal Process

Step 1: Review your assessment

Get assessment notice from county
Check for errors (wrong square footage, features)
Compare to similar properties

Step 2: Gather evidence

Recent comparable sales
Independent appraisal
Photos of property issues
Documentation of errors

Step 3: File informal appeal

Contact assessor’s office
Present your evidence
Many issues resolved at this stage

Step 4: Formal appeal (if needed)

File with assessment appeals board
Meet deadline (often 30-90 days)
Present case at hearing
May need representation

Evidence That Helps

Strong evidence:

Lower sales prices for comparable homes
Professional appraisal below assessed value
Errors in property record (wrong size, features)
Photos of property defects

Weaker evidence:

General complaints about taxes being too high
Comparisons to different property types
Assessments from different years

Appeal Success Tips

Be prepared: Bring organized documentation

Be specific: Point to exact errors or comparables

Be respectful: Assessors and boards respond better to professionalism

Know the standard: Appeal based on value, not ability to pay

Consider hiring help: Tax consultants or attorneys for large assessments

Property Taxes When Buying a Home

Estimating Taxes Before Purchase

Don’t assume current tax = your tax

Current owner may have:

Homestead exemption you don’t qualify for
Assessment based on lower purchase price
Senior exemption
Long-time owner with outdated assessment

Estimate your taxes:

Check if sale triggers reassessment
Calculate based on your purchase price
Ask local assessor’s office
Add 10-20% buffer for future increases

Tax Proration at Closing

Buyer and seller split taxes based on ownership dates:

Example: Annual tax $4,800, closing July 1

Seller owned 181 days (Jan 1 - June 30)
Seller’s share: $2,378
Buyer’s share: $2,422

If seller already paid full year, buyer credits seller at closing. If taxes unpaid, seller credits buyer.

Managing Property Tax Increases

Why Taxes Increase

Assessment increases:

Home values rise
Improvements you made
Reassessment catches up to market

Rate increases:

School budgets increase
Local services expand
Infrastructure needs
Bond measures passed

Limiting Tax Increases

Some states limit increases:

California Prop 13: Limited to 2% annually
Massachusetts Prop 2½: Limited tax levy increases
Various other states have caps

Your options:

Appeal if assessment is too high
Apply for all exemptions you qualify for
Vote on local tax measures
Consider tax implications when choosing where to buy

Frequently Asked Questions

Are property taxes tax deductible?

Yes, property taxes are deductible if you itemize. The SALT (State and Local Tax) deduction is capped at $10,000 combined for property taxes and state income taxes.

How often do property taxes change?

Taxes can change annually based on assessment changes or rate changes. Some states limit annual increases. After buying, expect taxes to adjust to reflect your purchase price.

What happens to property taxes when I pay off my mortgage?

You’re still responsible for property taxes—they never go away. Without escrow, you’ll receive bills directly and must pay on time to avoid liens.

Can I pay property taxes monthly?

Through escrow, yes—you pay 1/12 each month with your mortgage payment. Paying directly, it depends on your county—some offer installment plans.

Do property taxes go up every year?

Not necessarily, but often yes. Assessment increases and rate changes can raise taxes. Some states cap annual increases. Decreases happen but are less common.

What’s the difference between assessed value and market value?

Assessed value is what the taxing authority says your home is worth for tax purposes. Market value is what it would sell for. They may be equal or assessed value may be a percentage of market value, depending on your state.

Understand how property taxes impact your budget