How Property Taxes Are Calculated

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Every year, millions of homeowners deal with property taxes. In most situations, when the tax bill comes, if it seems reasonable, most people would pay it and move on with their lives. That being said, to make sure that you are not being overcharged on property taxes, it's important to understand how they are calculated and how property values are determined .

Determining Property Taxes

The property taxes that are being accumulated by the states and the federal governments serve as a major source of income. In most cases, these taxes come in the form of a percentage, where many different councils, boards and legislatures will decide the appropriate amount of tax revenue that needs to be raised. They will have a hearing on the budget to decide the amount of money that will be needed so that the government can cover its expenses with no financial challenges in the year ahead. The services that are normally funded by property taxes include: education, emergency services, transportation, libraries and parks as well as different recreational activities.

Calculating Property Taxes

The way that property taxes are calculated would be through the use of the mill levy and the assessed property value.

Mill Levy or Millage Tax

The mill levy is simply the tax rate levied on your property value, with one mill representing one tenth of one cent. So, for $1,000 of assessed property value, one mill would be equal to one dollar. Tax levies for each tax jurisdiction in an area are calculated separately and then all the levies are added together to determine the total mill rate for an entire region. Generally, the city, county and school district each have the power to levy against the properties in their boundaries. So each entity would calculate its required mill levy and

it would all be tallied up to equal the total mill levy.

As an example of a mill levy calculation, suppose the total assessed property value in a county is $100,000,000, and the county decides it needs $1,000,000 in tax revenues to run the county. The mill levy would simply be $1,000,000 divided by $100,000,000, and equals 1%. Now, suppose the city and school district calculated a mill levy of 0.5% and 3% respectively. The total mill levy for the region would be 4.5% (1+0.5+3) or 45 mills.

Assessed Value of Property

Property taxes are calculated by taking the mill levy, like we've determined in the previous example, and multiplying it by the assessed value of your property. The assessed value is a yearly estimation performed to decide the reasonable market value for your home based upon prevailing local real estate market conditions.

The assessor will review all relevant information surrounding your property to make an estimate of the overall value. To provide you with the most accurate assessment, the assessor must look at what similar properties are selling for under the current market conditions, how much the replacement costs for the property would be, the maintenance costs for the property owner, if any improvements were completed, the amount of income you are making from the property, and the amount of interest charged to purchase or construct a property comparable to yours.

After the assessor has this information, there are three ways that your property will be valued:

Performing a Sales Evaluation

The assessor will value your property based on similar sales which have taken place in the area. As this method is being used it is important to look at overpricing, underpricing, the location of the property and the overall state of the property.

The Cost Method


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