What Is a Property Tax Assessment and How Does It Affect You?

Your Annual Property Tax Bill Depends on Your Assessment

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A property tax assessment determines the market value of a piece of property. Local governments use your tax assessment as the basis for your annual property tax bill. Assessments are usually prepared on a specific date each year, and they're often based on recent sales of comparable properties in the area.

What Property Taxes Pay For

Property taxes are often the most significant source of revenue for governments. These taxes pay for schools, parks and recreation, government employees' salaries and benefits, transportation infrastructures, and local law enforcement and fire departments.

Some buildings and land are exempt when they're used for religious purposes.

When Is a Property Assessed?

The timing of tax assessments can vary by jurisdiction. They may occur once each year, or every other year, or sometimes every five years or more.  Some locations require assessments when a property changes ownership.

How Is a Property Assessed?

Governments typically assess property by one of three methods: the replacement method, the sales comparison method, or—for business property—the income method.

The replacement method, sometimes called the cost 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, also called the market approach, is based on 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 the lack of them. For example, the assessed value will increase if the assessed property has a swimming pool and comparable sales in the area don't share this feature. If the property doesn't have a pool but comparable sales do, the assessed value will decrease.

The market method 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 Property Taxes Are Calculated

Your property tax bill begins with the assessment of your property's market value, and many governments allow property owners to claim exemptions to reduce the assessment. You might be eligible for a homestead exemption if you actually live in the residence, or for a senior exemption if you're retired. Some areas only allow exemptions for religious groups or not-for-profit groups.

Taxes are then calculated on the balance at a rate set by the taxing authority for all homes and properties in that area, sometimes called a multiplier or mill rate. A mill rate is one-thousandth of a currency unit, or one-tenth of one cent: $0.001. You can also look at it as $1 per $1,000 of assessed value. 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. 

Assessments can go down on occasion for a variety of reasons. This doesn't necessarily mean that the fair market value of your property is less; it may be due to qualifying for certain exemptions, for example.

What If You Don't Agree With the Assessment?

Property owners have a right to appeal assessments that they feel are way off base. Contact your local tax assessor to learn the procedure in your area, but prepare to have documentation to support your case, such as an appraisal using comparable properties that's markedly different from the assessment.

You might have to act relatively quickly. Some areas confine appeals to a certain period of time after assessment notices are sent out.

Property Taxes Are Tax-Deductible

On the bright side, you can at least claim a federal tax deduction for property taxes you pay locally, but you must itemize your deductions to do so. This might not be in your best interest unless the total of all your itemized deductions exceeds the amount of the standard deduction for your filing status. You can't itemize and claim the standard deduction as well. It's an either/or decision.

As of 2019, you can claim a deduction for up to $10,000 total in property, state, and local taxes. All these taxes are included under the same $10,000 umbrella.

The Consequences of Not Paying

Property taxes are an ongoing obligation. They don't end when you pay off your mortgage, even if your tax obligation has been included in your mortgage payment all along. Your property taxes simply become a separate bill now.

Penalties and interest will accrue if you pay late, and you can lose your property to foreclosure if you don't pay at all.

The information contained in this article is not legal or tax advice and it is not a substitute for legal or tax advice. 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.

Article Sources

  1. National Association of State Retirement Administrators. "State and Local Revenue." Accessed April 24, 2020.

  2. New York Department of Taxation and Finance. "Property Tax Exemptions." Accessed April 24, 2020.

  3. Indiana Department of Local Government Finance. "Citizen's Guide to Property Tax." Accessed April 24, 2020.

  4. Georgia Department of Revenue. "Property Tax - Real and Personal Property - FAQ." Accessed April 24, 2020.

  5. Los Angeles County Office of the Assessor. "Real Property Assessments." Accessed April 24, 2020.

  6. New York Department of Taxation and Finance. "How Property Is Assessed." Accessed April 24, 2020.

  7. Pennsylvania Department of Community and Economic Development. "Homestead Tax Exemption." Accessed April 24, 2020.

  8. State of Connecticut Office of Policy and Management. "Mill Rates." Accessed April 24, 2020.

  9. City of Philadelphia Board of Revision of Taxes. "Appeals." Accessed April 24, 2020.

  10. IRS. "Publication 530 (2019), Tax Information for Homeowners." Accessed April 24, 2020.

  11. Lewis County, Washington. "Treasurer's FAQ." Accessed April 24, 2020.