Have you ever wondered how your property taxes are calculated? When you are paying your property taxes you might have noticed that the tax amount is different every year.
Your property taxes are calculated on the basis of your property assessment. In this post, we will understand what assessment means and how it is used to calculate property taxes.
A property assessment is an evaluation of property done through a certified assessor to derive the estimated value of a real estate to calculate taxes that are needed to be paid by the owner of the property.
In most the counties the real estate assessment is done every year so that the taxes could be collected on the property and submitted to the local government bodies.
The assessment is done by an elected assessor who will visit the property for assessment of the real estate property.
The assessor will then evaluate the physical structure of the property, any additions or upgrades that are done to the property since its last assessment, the size of the land, and compare it with the prices of the other properties in the same area with the same configuration to get a fair estimated value of the property.
The assessors submit the value of the property to local government bodies that then set a tax rate in the area for the properties.
In any given county the property taxes are calculated based on the total assessed value and the cost of services required for maintaining the local amenities such as fire protection, roads, parks, snow removal, etc.
Let’s take a few examples of how the tax rate is derived.
The tax rate is the cost of services divided by the total amount of assessed value. Let’s say in a given county the total assessed value is Five million dollars including all the homes and the cost of service is ten thousand dollars.
Then the tax rate in that county would be $0.00200. If your property assessment was done at $350,000, then your taxes for the year would be $700.
Now let’s say that the total property assessment values were increased to seven million dollars and the cost of assessment remains the same which is ten thousand dollars, and your property was assessed at $375,000. In this case, the tax rate would be $0.00142. Your tax for this year would be $532.
This means even if your property value increases and the cost of services remain the same, your taxes will decrease.
Let us take another example. If the total property assessment value for the county remains at seven million without any new houses being constructed in the county, however, the cost of services increases to fifteen thousand dollars, then the tax rate would be $0.00214.
Since your property assessments also remain at $375,000, your yearly property taxes would be $802.5.
This means, that when the cost of service increases and your property assessment remains the same, your property taxes will increase.
Finally, let’s say that there were a couple of more houses constructed in the county and the total assessment value bumped up to eight million dollars whereas the old properties were assessed at the same values, and the cost of service remains the same at fifteen thousand dollars, then the tax rate would be $0.00187.
Now since the old houses were assessed at the same value, your property assessment came to $375,000 and your yearly property tax was $701.25.
This means if there are new properties constructed in the area and the assessment of the hold homes remains the same along with the cost of services, you will have less property tax to be paid.
A home assessment is one of the most significant parts of calculating your property taxes. The other component is the tax rate.
The tax rate depends upon the increase or decrease in the property assessment value according to the overall market along with the change in the county’s budget for the cost of services.
If you are planning to buy a new home, you need to know the costs that are going to be applied as a homeowner to own the property.
One of the costs that you need to pay probably lifelong till the time you won the house is property taxes.
In this post, we will learn what are property taxes and how do they work.
Property taxes are the amount that is levied upon any real estate property which the homeowner has to pay annually to the government, or Municipal Corporation of the area.
Property taxes are used as primary means for funding local governments which are used to pay for the necessary public services.
The lion’s share of property tax revenue is typically used to fund public schools. In fact, according to renowned sources, school districts received eighty-three percent of their source revenue from property taxes.
This means, when it comes to local funding for public schools, property taxes make up a vast majority of it.
While property taxes are most known for funding public schools they often contribute towards many other things like public safety including police, EMTs, firefighters, sanitation, maintenance, and a plethora of other things.
Now that we have understood what are property taxes and their purpose, let us know about some of the property tax terms that are integral to understanding.
It is the most probable price which a property would sell for in an open market. The assessed value on the other hand is the value assigned to the property from which the tax rate is taken.
This is an important distinction to make is because the assessed value would not always be the same number as the market value.
The reason for this is something known as the assessment ratio. It is a percentage of the determined market value by which the property tax is calculated.
The percentage varies widely depending on the area that you live in. Some states have an assessment ratio of one hundred percent, while in some states it can be as low as ten percent, for example in the state of Mississippi.
This doesn’t mean that property taxes are any lower in Mississippi than elsewhere in the country, it only means that they use a smaller number for determining tax liability.
In some places, there is also no cap on how much property taxes can go up each year. So even if the assessed value goes high by a very large percentage in a given year the taxable value cannot exceed a certain threshold.
This is done to keep property taxes from going up by exorbitant amounts in years where property values go up significantly.
Depending on where you live, there may be other freedom that contributes to a lower taxable value or tax rate as well.
One such exemption that is very common is the homestead exemption. While a homestead exemption is a legal provision that has various roles in homeownership.
The homestead exemption in part offers a reduction in property taxes for a primary residence. Its application will vary from state to state.
Your trusted real estate agent would be able to provide you with more accurate information about the homestead exemption in your state so that you know how much reduction you will get if you purchase a primary residence.
The last thing to pay attention to is the term known as the millage rate that you may come across if you go looking for property tax rates in your area.
The tax rate for a particular jurisdiction can be expressed as a percentage that you likely know how to use.
However, you may find that your property tax rates in your area as expressed in mills, which is the tax payable for one thousand dollars of assessed value.
It is crucial to understand the relevance and importance of property taxes when you are purchasing a home.
Believe it or not, property taxes can make hundreds of dollars of difference in your mortgage payment.
The lender in certain loan programs would require the property taxes to be paid as a part of your monthly mortgage payment prorated monthly for what is to be owed for the year.
Knowing this it is important to pay attention to the estimated property taxes on a particular home that you may be interested in so that you know how that will affect your mortgage payment.
The property taxes are not always required to be paid as part of your monthly mortgage payment.
With conventional loans with more than twenty percent down payment, you normally have the option to pay them in a lump sum when they become due instead if you prefer.
To get more information on the real estate taxes in your area get in touch with your real estate advisor and your trusted loan officer so that you can know more accurate information.