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How to Estimate Property Taxes

Updated for Tax Year 2014


OVERVIEW

There are a number of fundamental property tax concepts you should be aware of that can help you calculate your property taxes.


Most states allow their city, town and other local governments to raise revenue by charging homeowners a property tax. Since property tax rates and formulas can vary significantly in different areas of the country, there isn’t a single calculation that all homeowners can use to estimate their property tax bill. There are, however, a number of fundamental property tax concepts you should be aware of that can help you calculate your property taxes.

Market value of home

In most cases, local governments use the market value of each home within its jurisdiction as the starting point to calculate each homeowner’s property tax bill. Local governments will authorize a specific department, such as a town assessor’s office, to evaluate the market value of each home on a regular basis. This market value reflects the price you can obtain if you put your home up for sale.

Assessed home value

Many jurisdictions use the assessed value of your home rather than its market value when computing the property tax payments. A home’s assessed value usually represents a percentage of its market value. However, each local government’s tax authority determines the appropriate percentage to use on the homes within its jurisdiction.

In New Jersey, for example, all 21 counties within the state use 100 percent of the home’s market value as the assessed value. In New York, however, each municipality uses a different percentage to establish a home’s assessed value. In Florida, rather than using a percentage, all jurisdictions reduce the market value by a number of exemptions to calculate assessed value, which Florida refers to as a home’s “taxable value.” The most common Florida property tax exemption is the homestead exemption, which can reduce the assessed value of a taxpayer’s permanent residence between $25,000 and $50,000.

How property tax rates are determined

The property tax rates of local jurisdictions aren’t uniform, but they do use similar formulas to calculate the rates. Each state has a number of tax districts that establish property tax rates based on their financial needs for the year, which generally include the necessary funding to support school districts and local government offices. From this amount, local governments subtract the funds they expect to receive from other sources to arrive at the budget deficiency -- which is the amount it needs to raise through property taxes. This budget deficiency is divided by the total assessed values for all homes within the jurisdiction to determine the appropriate rate of property tax to charge homeowners.

Calculating property tax

Once you determine your home’s assessed value and the tax rate your local government imposes, multiply your home’s assessed value by the tax rate to estimate your property tax bill for the year. However, in some states, the tax rate will be expressed as the amount of tax you must pay for each $1,000 of assessed value. This is typically referred to as a mileage rate.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

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