Quick Takeaways

  • Property tax is calculated by the local government and is based on the real estate of each individual, though some jurisdictions tax tangible personal property, like a boat, as well.
  • Property taxes are than used by the municipality to fund sewer, water, and road repairs, maintain parks, fund schools, libraries, and other institutions.
  • Not paying your property taxes can result in a lien against your property.

Source: Property Taxes (Investopedia, Apr. 13, 2022)

Property taxes are a large part of homeownership in the United States. Depending on which state and/or city you live in, your property tax rate will vary. Your property tax is based on an assessment of the value of your home, and the money from these taxes funds municipal entities like schools, libraries, public safety, roads, sewers, water, and more.

The value of your home is dependent on many things, all of which are taken into consideration when determining your property taxes. Whether your town is adding a new school, fire station, or redoing a road or you have added a finished attic to your home, your property taxes will reflect the value added to your residence.

Some homeowners feel that their property taxes are too high, meaning that their house is not actually worth as much as it was assessed for. In this historic housing market, home values have skyrocketed, but we have yet to see the same level of increase from property taxes. If you feel your property taxes are unfair, there are official channels to challenge them.

What Are Property Taxes?

Property tax is generally considered a regressive tax, given that it is based on monetary values of land, improvements to land, personal property or intangible property rather than income levels. 

While all state-level U.S. jurisdictions have some form of real property (land and structure) taxation, far fewer impose taxes on intangible personal property (such as stocks, bonds, patents, and copyrights) and tangible personal property (like boats, cars, and business equipment). Residential and commercial real estate are most often a source of local tax revenue, while personal property taxes are often a source of state tax revenue. 

How Are Property Taxes Used?

Revenue from property taxes can be used to fund local government services for community safety such as law enforcement and fire departments or funding education through school districts or libraries. 

How Do You Calculate Property Tax?

Property taxes are based primarily on a home’s value, and state officials and local governments make the final determination of the property tax rate imposed on residential homeowners. 

Property tax rates vary across and within states due to differences in statutory tax rates and the different methods utilized by local governments to compute their real property tax base. 

Typically, the taxing jurisdiction assesses the real property value by approximating the amount the property would sell for in a prospective transaction. On the other hand, some jurisdictions based the real property value on acquisition value of the property or the on last sale price. Still other jurisdictions assess the income the property could generate. 

In addition, some jurisdictions may impose a different statutory tax rate for residential and business property. 

Lastly, while local governmental entities levy most property taxes, some states may also levy (or are permitted to levy) a statewide property tax, which can be in addition to the local property tax. 

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