What Is Property Tax and How Does It Work?

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Property tax is a local tax that homeowners pay on the value of their home and land. It helps fund public services like schools, roads, police, and parks. Understanding how property tax works — and how it’s calculated — can help you plan for annual payments and potentially lower your tax bill.

What Is Property Tax?

City or state property taxes are fees or real estate taxes that homeowners pay to their local government. These taxes help fund various public services like schools, libraries, roads, parks, fire protection, emergency services and other infrastructure. Essentially, they are a real estate ad-valorem tax, which means the property tax varies as it is derived from the assessed value of your home property or real estate.

What Do Property Taxes Pay For?

Local property taxes play a crucial role in funding public services and infrastructure in your community. 

Five common uses of this tax revenue include:

1. Education: This money contributes significantly to funding local public schools throughout your surrounding school districts. This funding helps maintain educational programs, pay teachers’ salaries, and improve school facilities.
2. Infrastructure: Revenue is used to build and maintain roads, bridges, and other transportation infrastructure. These investments help improve mobility and access within your community.
3. Public safety: Local services use this support for police and fire departments, ensuring the safety and security of residents. This funding helps pay for personnel, equipment and emergency response services.
4. Parks and recreation: A portion of the funds are allocated to develop and maintain parks, recreational facilities, and green spaces. These amenities enhance the quality of life for residents and promote community well-being.
5. Community services: Some taxes may also fund various community services, such as libraries, community centers, and social services programs. These services contribute to the overall health and vitality of the community.

How Property Taxes Are Calculated

Sales taxes are generally tabulated for you, but calculating property taxes is a bit more involved and varies depending on local tax laws, homestead exemptions, regulations and other property tax liabilities. Take these steps to figure out what you’ll need to pay for your tax year:

Property Tax Example Calculation

Understanding how your property taxes are calculated is easier to understand with a step-by-step example. 

Say you own a home with an assessed value of $500,000 and your local millage rate is 15 mills (or 1.0%).

1. Calculate the taxable value: In this case, the assessed value is $500,000.
2. Apply the millage rate: The millage rate is 15 mills, which equals 1.5% for every $1,000 of assessed value. 
3. Calculate the property tax: 15/1000 x 500,000 = $7,500

The final property tax is $7,500.

What Affects How Much You Pay

There are several factors that impact your property taxes. These include: 

• Assessed property value. The higher the property value, the higher your property taxes are likely to be. 
• Location. Areas where there are better schools or higher valued homes will drive up property taxes. 
• Home improvements. Any improvements to your home, like an added room or remodel, can potentially increase its value. 
• Public budget requirements. If the local government needs to fund schools, infrastructure or police, tax rates may be adjusted to reflect that change. 
• Local tax rate. Local governments may change tax rates. As a result, an increase in the rate impacts property taxes. 

What Is a Property Tax Assessment?

A property tax assessment is when a local tax assessor evaluates your property to determine how to tax it. Factors that are included in the evaluation are market value, location, property value and size. The local assessor will use these factors to calculate the amount of property tax a homeowner will owe.

A property tax assessment is different from a home appraisal. An appraisal is conducted by a licensed appraiser and used by a lender to support the loan amount in a mortgage loan. The appraisal value is also used to refinance, buy, or sell a home.  

How To Lower Your Property Taxes 

Here are five ways to be proactive in lowering your property taxes:

• Appeal your property tax assessment if your home is overvalued
• Check for errors in square footage or listed features
• Limit major home improvements that could raise your home’s value
• Apply for exemptions if you’re a senior, veteran, or have a disability
• Pay on time to avoid penalties and compounding interest

When Are Property Taxes Due?

The due dates for property taxes depend on the local government and jurisdiction. Here are some common payment patterns:

• Annual: Due once a year in late spring or early winter.
• Semi-Annual: Due twice a year in installments in the fall and spring.
• Quarterly/Monthly: Payments are spread out over the course of the year. 
• Escrow Account: Some homeowners roll their property taxes into an escrow account in their mortgage. The lender pays the property taxes on behalf of the owner. 

How To Pay Property Taxes 

There are several ways to pay your property taxes. Choose the method that works for you to pay your property taxes on time. Here is a list of ways to pay:

• In-person. You can drive to your local tax assessor’s office and pay your property taxes in person. 
• Online. Many local governments have an online portal where people can pay their property taxes. There may be a small fee associated with the payment. 
• Mail. Property taxes can be sent via mail. When mailing payment, fill out a check or money order and include your property tax bill. 
• Escrow account. Some homeowners will include their property taxes with their mortgage payment if they have a mortgage. The lender will pay your property taxes on your behalf. 
• Installment payments. Some local jurisdictions allow for monthly or quarterly payments. 

Property Tax Rates By State 

Property taxes vary from state to state. The property tax rate in each state is impacted by local government needs, real estate values and state tax policies. Depending on your state, you could look into exemption and relief programs. 

Here is a brief sample of tax rates in five different states.

What Happens If You Don’t Pay Property Taxes?

The payment schedule and amount of property taxes you owe depend on where you live. If you don’t pay your property taxes, your tax bill will continue to accrue interest and penalties, and a lien may be placed against your property. The taxing authority is then able to start foreclosure proceedings on your tax-delinquent property. 

If you feel that you must negotiate your tax bill, for most local property tax codes, you can discuss the assessed tax rate or formally contest the rate with the assessor. If you have questions, it’s better to reach out to your county or local tax office, but make sure you pay what you owe so you don’t potentially lose your property.

What to Keep in Mind About Property Taxes

• Property tax is based on your home’s assessed value and your local tax rate
• It pays for public services like schools, roads, and emergency response
• You can calculate it using: Assessed Value x Millage Rate
• Common ways to reduce your tax bill include exemptions and appealing your assessment
• Check your local payment due dates — penalties apply if you miss them

Caitlyn Moorhead contributed to the reporting for this article.

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