What Is a Property Tax Assessment?

A Property Assessment Determines the Taxes You'll Pay

A Balcony View of Manhattan During Sunset
Andrew Rowat/ Stone/ Getty Images

A property tax assessment is a determination of the market value of a piece of property. Assessments are usually prepared as of a specific date each year and they are often based on recent sales of comparable properties in the area.

What Do Property Taxes Pay For? 

Local governments use your tax assessment as the basis for your annual property tax bill, and property taxes are often their most significant sources of revenue.

These taxes pay for schools, parks and recreation, government employees' salaries and benefits, transportation infrastructures, and local law enforcement and fire departments.

When Is a Property Assessed? 

The timing of tax assessments can vary by jurisdiction, but they typically occur once every year or every other year. Some locations only do assessments when a property is changing ownership, but this is rare. 

How Is Property Assessed? 

Governments typically assess property by one of three methods:

  • The replacement method estimates how much it would cost to replace the property based on current rates for labor and materials. Reasonable depreciation is deducted and the value of the land upon which the structure sits is added on. 
  • The sales comparison method is based on the sales figures of similar properties in the immediate area. The value is adjusted upward or downward depending on the assessed property's unique attributes or lack thereof. If the assessed property has a swimming pool while comparable sales in the area did not share this feature, the assessed value will increase. If the property does not have a pool but comparable sales did, the assessed value will decrease. The system is very similar to that used by lenders to appraise property for mortgage purposes. 
  • Business property is typically assessed using the income method -- the amount of income the property typically generates adjusted by factors such as business taxes, insurance costs, and operating and maintenance expenses. 

How Are Property Taxes Calculated? 

Your property tax bill begins with the assessment of your property's market value.

Many governments allow for exemptions you can take to reduce the assessment, such as a homestead exemption if you actually live in the residence. Taxes are calculated on the balance at a rate set by the taxing authority, sometimes called a multiplier or mill rate, for all homes and properties in that area.

A mill rate is representative of one-thousandth of a currency unit, or one-tenth of one cent: $0.001. A property's tax bill would typically be arrived at by multiplying its assessed value by the mill rate and dividing the result by 1,000. 

Here's an example. Your assessed property value is set at $250,000 and your taxing authority's mill rate is 10. Your tax bill would be $2,500 a year: $250,000 times 15 divided by 1,000. 

NOTE: State and local laws change frequently and the above information may not reflect the most recent changes. Additionally, the rules applied to property taxes by local tax authorities can vary significantly by jurisdiction. Please consult with a local attorney or accountant for the most up-to-date advice. The information contained in this article is not legal or tax advice and it is not a substitute for legal or tax advice.

Further reading:

Your Property Tax Assessment: What Does It Mean?