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Are you wondering how to calculate property tax? Property tax calculation is a sore spot for homeowners, as they are often very confusing. But they don’t have to be.

Real Estate Taxes 101: How to Calculate Property Tax

Here is everything you need to know about property taxes, including how to calculate yours and what your hard-earned money is being used for:

What are Property Taxes?

Property taxes are calculated by local government agencies and paid for by the owner of the specific property. The taxes are typically based on the value of the property, including the land on which it sits.

The local government uses property taxes to pay for improvements to the area’s water and sewer systems. They also use them to provide the salaries for first responders, like law enforcement and firefighting services, as well as to improve recreational spaces, like libraries and parks.

How Do You Calculate Property Tax?

There is typically an annual hearing on the budget for a particular area. At this hearing, the governing boards decide on how much money the local government needs to cover the year’s expenses.

Once they set the budget, it’s time to levy the taxes. Property taxes are calculated using the assessed property value of the home and the mill levy system.

What is a Mill Levy?

A mill levy, sometimes called a millage tax, is the tax rate on your property’s value. One “mill” is equal to one-tenth of one cent.

For example, if a property has an assessed value of $1,000, then one mill would be equal to $1. Where it might get a little confusing is that each tax jurisdiction (that is, the city, the county, and the local school district) calculate their tax levies separately. Then, all of these are added together to determine the “mill rate” for the area.

The “mill rate” is the sum of all the individual mill levies.

Think of it this way:

Let’s say that the total assessed property value in a particular county is equal to $200 million. Then, the county decides at its annual budget hearing that it needs $2 million to ensure things run smoothly for the coming financial year.

The mill levy would be $2 million over $200 million, which is an easy 1%.

But, let’s say the city and school district also held annual budget hearings and decided that they needed to garner mill levies of 5% and 2% respectively.

To find the total mill levy for the area these bodies serve, all you need to do is add the three levies together.

1% + 5% +2% = 8%, or 80 mills.

Next Steps: Property Value Assessments

Now that we understand mill levies, we can get into the specifics of how to calculate property taxes. Because we know that property taxes are calculated by multiplying the mill levy by the assessed value of your property, it is essential that we understand how these assessments work.

Property assessments are an annual look at your home to determine its reasonable market value, based on its location and the current conditions of the market.

How To Assess the Value of A Property

There are typically three ways to value a property:

The Sales Evaluation

In this assessment method, the value of your home is determined by researching what similar homes in your immediate area are selling for, based on their location and amenities.

The Cost Method

In this type of assessment, the assessor figures out how much it would cost to completely replace your property. If your home and the land it sits on are not new, the assessor takes depreciation into account.

It’s also important to note that the cost method differs from an insurance evaluation in that it only considers the land and the physical structure of the home, not what’s inside of it.

The Income Assessment

The final way to determine the value of a property is to understand its income potential. If the assessor uses this method, he will have to consider the costs of maintaining the property, insurance, taxes, and any potential return you can receive on these investments.

Final Thoughts on How to Calculate Property Tax

The public tax assessor determines the value of a home for many reasons. Once the assessor calculates the value, they multiply it by the mill levy to determine how much you owe.

However, it is important to keep in mind that when you have your property assessed, it doesn’t mean you have discovered its Fair Market Value, which is the agreed-upon price between a willing and informed buyer and seller under usual and ordinary circumstances.

Ready to pay lower property taxes? Work with Clever to help you find the perfect new home! Call us today at   1-833-2-CLEVER or fill out our online form to get started.


Andrew Schmeerbauch

Andrew Schmeerbauch is the Director of Marketing at Clever Real Estate, the free online service that connects you top agents to save on commission. His focus is educating home buyers and sellers on navigating the complex world of real estate with confidence and ease. Andrew has worked on projects for the United Nations and USC and has a particular passion for investing and finance. Andrew's writing has been featured in Mashvisor, L&T, Ideal REI, and Rentometer.

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