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How Is Property Tax Calculated

Richard Latimer

August 12, 2021

There are several variables as to how property taxes are calculated. The three significant variables that go into this calculation are the assessed value of your home or property, the assessed value of other homes in your area, and the government’s annual budget. These numbers are used to determine the tax rate, also known as the mill levy.

You determine the mill levy by dividing the dollars necessary for local services by the assessed property value. Hypothetically, consider your local government wants to collect six million in property taxes. The value of homes in your area is five hundred million. The tax rate or mill levy is determined by dividing six million by five hundred million. 

The value of your home is by far the most essential variable in this equation. Various factors go into determining the value of your home. One factor is the economy. If you were a homeowner in 2008, that same home or property was worth a lot less at that time compared to now due to the economic crash. Location plays a significant role as well. A property in Alpharetta, Georgia would have more value than a property in Jonesboro, Georgia. 

The school district is also part of this calculation, a town with a good school district will likely have higher property values. Higher property values equal higher property taxes. High crime rates drive property values down, which in turn will mean you won’t pay much in property taxes in a crime-ridden neighborhood with a poor school district. Size and the age of the home are critical to consider when getting an appraisal for your home or property.

The factors that determine the size of a home are how many rooms and how much square footage or acres the property sits on. A brand new home will have a high property value simply because it is new and has not had a lot of wear and tear or damage. Any renovations or improvements that improve the home’s functionality, size, or appearance always increase the property value. Which will mean you will pay for that on your annual property tax bill.

Also, when getting your home appraised, the appraiser will analyze current market trends and the value of similar homes or property in your jurisdiction. Even though the appraiser will take the value of similar homes or properties in the area into consideration, this does not mean two properties in the same area will have the exact same value due to a host of reasons. 

🧠 Remember: This is how you calculate property value for taxes: Assessed Value = Market Value x (Assessment Rate / 100)

Why We Pay Property Taxes 

Earlier, we went over what property taxes are and what variables go into calculating property taxes. If there is one thing we can all agree on, it is the fact that no one likes to deal with that significant annual expense when it comes up. But it is something you must accept if you plan to own a home or property, and if you do not pay your property taxes when they are due, severe consequences can occur. If you are wondering where your money goes, stay tuned. 

Governmental agencies such as schools, law enforcement, DOT workers, and emergency services such as hospitals and ambulances have to be paid for somehow some way, right? These services and the employees’ salaries are all paid for by taxpayers like you and me.

If there were no money to pay for these services, we would live in a world twice as chaotic as we do now. Social services such as welfare, unemployment, and social workers such as school counselors and therapists are also paid for by money from the taxpayers. Construction and repairs to the roads we drive on, libraries, and fire protection are all covered by this money. 

Sewage, trash pick up, and community maintenance is essential from just a public health and safety perspective. The money obtained from the taxpayers is what makes it possible for these services to run. If you do not pay your property taxes, you are taking the risk of your home or property being seized, foreclosed, and auctioned off. 

What To Do If You Cannot Pay Your Property Taxes 

Life is hard, and we all face financial hardship at some point in our lives unless you were very fortunate. If you cannot pay your property taxes and make no efforts to alleviate the issue, the government will take serious action against you that will have lingering effects for many years to come. There is action you can take to reduce the amount of property taxes you must pay. For example, you can arrange to enter into an abatement, deferral, or repayment program. You can also challenge your home’s assessed value. 

We will go more into depth as to how you can challenge your home’s assessed value. Property taxes are based on the taxable value of the home or property. The taxable value can be based on the fair market value, full value, or actual value. Every state or jurisdiction has a specific process for challenging or appealing the property’s assessed value. Typically, you make your appeal after you receive the bill for your property taxes. 

To win your appeal, you have to prove the market value given to your property is not correct. Some states or jurisdictions require you to pay the bill first then appeal. If any discrepancies are found, you will then receive a refund. Be sure to follow the procedures for making an appeal in your state or jurisdiction properly to reduce your chances of losing the appeal and increasing your chances of winning your appeal, and saving your hard-earned money. 

Every jurisdiction or state has implemented a tax abatement or exemption program. Qualifications for these programs are based on age, disability, income, and personal status. Senior citizens, older homeowners, and veterans are entitled to tax abatement or reduction. Other than that, you usually would have to apply and show proof of eligibility. Tax abatement or reduction is not possible if you are behind on your property taxes. 

💡 Tip: If you are unable to pay your property taxes you can apply for property tax relief.

Increase In Property Taxes 

Various factors will cause your property tax bill to increase. Renovations such as an extra room or bathroom, a hot tub, or a patio will cause your property taxes to rise. You will gain more satisfaction with your time at home, but it will come at a cost. Your property taxes can also increase without making any changes to your property or home.

The more desirable your home becomes, the higher amount you pay annually on your property tax bill. The city hall may also play a significant role in increasing your property taxes. If your local city hall is facing budget discrepancies as a homeowner, you are on the hook to make up for the loss. 

The economic impacts from Coronavirus have created a problematic situation for local governments. Homeowners and property owners have been affected by this complicated scenario. A recent study indicates that homeowners in Nashville have seen a thirty-four percent increase in property taxes to combat the pandemic’s monetary challenges on the economy. In some jurisdictions, because of the pandemic, local governments have offered property tax relief. Some states even have restrictions in place to prevent property taxes from increasing too much or too rapidly. 

How To Pay Your Property Taxes 

When you make a mortgage payment, often you more than likely are paying property taxes. Most of the time, mortgage lenders estimate your annual property taxes and integrate them into the monthly payment. Whatever the amount is builds in an escrow account, so you do not have to go any further when your taxes are due. 

Regardless of whether your property is paid off or not, you are still obligated to pay property taxes. There are several ways to go about paying it. If it is not already integrated into your mortgage payment, you can pay online. You can also pay over the phone with a credit or debit card. The final option is to mail a check, but this can be lengthy in the time. 

The History Of Property Taxes 

Taxation based on the ownership of property has been implemented since ancient times. The concept of modern taxes comes from British and European landlords and landowners. In the fourteenth and fifteenth centuries, a taxpayer’s ability to pay was determined by ownership and or the property’s occupancy. 

In due time, property taxes were eventually regarded on the physical property itself and not ownership or occupancy. The United Kingdom developed a system of rates based on the property’s annual value. The growth of property taxes closely relates to economic and political conditions to come. 

Property taxes were a good source of revenue for local governments in pre-commercial agricultural areas. As the Revolutionary War approached, the colonies had a tax system that made war against the world’s leading military power impossible. How taxes were structured varied from colony to colony. 

Several types of taxes existed at this time: capitation taxes, property taxes, faculty taxes, and tariffs on imported or exported goods and services. During the colonial war, taxes were increased. Settlers who lived far away from local markets became angry that they were being taxed on a per-acre basis and not on the property’s value. Light land taxes and heavy poll taxes favored landowners in southern colonies. By the end of the 1800s, thirty-three states changed their tax system to tax based on value, not per acre. 

The thirty-three states that changed their system are included in the following list: 

1. Illinois 

2. Tennessee 

3. Missouri 

4. Arkansas 

5. Florida 

6. Lousiana 

7. Texas 

8. Wisconsin 

9. California 

10. Michigan 

11. Virginia 

12. Ohio 

13. Minnesota 

14. Kansas 

15. Oregon 

16. West Virginia 

17. Nevada 

18. South Carolina 

19. Georgia 

20. North Carolina 

21. Mississippi 

22. Maine 

23. Nebraska 

24. New Jersey 

25. Montana 

26. North Dakota 

27. Washington 

28. Utah 

29. Idaho 

30. Kentucky 

31. Wyoming 

32. Washington 

33. South Dakota 

The appeal of uniformity politically in states west of the Appalachians was powerful. The uniform tax on all wealth was appealing to settlers supporting the Jacksonian ideas of equality. The general property tax applied to all wealth with no exemptions.

This new general property tax was administered by local officials elected to determine the property’s market value, figure out the taxes necessary to raise the amount levied, collect the taxes, and send it to the government. Due to the reforms on the taxation system, the taxpayer would pay for the services they enjoyed the most in proportion to their wealth. 

The United States developed the tax and administration system the way it did to bring in revenue for the local government. States usually divided themselves into counties, each responsible for administering laws. Citizens of states could organize municipalities, school districts, and many other societal organizations. The result was a large number of overlapping governments got formed, many of them in rural areas. Sales and income taxes did not bring enough revenue for the local governments, so the taxes people paid on property helped alleviate this issue. 

😃 Fun Fact: After 1066, William the Conqueror created an early form of land taxation.

Conclusion 

We have covered a lot in this article. Hopefully, you have a better understanding of how property taxes are calculated and why we pay them. It is essential that as a future or current homeowner or property owner, you understand these things. Failure can result in a world of financial hurt.

If you cannot pay your property taxes, don’t panic. There is a way and many options to prevent the chaos and economic disaster that can come from not being able to pay your property taxes. 

Also, as a home/property owner, it is essential to know how and when to pay your property taxes and see that you could deal with an increase in the amount you pay annually for property taxes due to various reasons.

Homeownership can be scary if you do not know what you are getting into, especially when dealing with property taxes. If you are a first-time buyer, it is advisable to seek the help of a financial professional to ensure that you do not make a fatal mistake that can put you in financial ruin.

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