Property Taxes

What You Should Know About Property Taxes

With the housing market in the United States rising, you may have recently purchased your first house and are curious about property taxes.

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What exactly is a property tax?

Property tax is a sort of tax that is levied on real estate and other types of properties that you own. Property tax is an ad valorem tax, which means it is levied on the basis of the assessed worth of the property. Property taxes are usually calculated based on the property’s location and assessed value.

State and municipal governments normally assess and collect property taxes on an annual basis. Within a state, and even between nearby counties, they might vary dramatically.

Key Takeaways:-

What factors go into calculating property taxes?

The basic levy rate, which is a percentage set by the municipal tax authority, is multiplied by the assessed value of your property to determine your property tax. Special assessments may be included in the total property taxes assessed in some situations.

What is the purpose of property taxes?

Property taxes are local levies that help pay for services and initiatives that benefit your community while also funding local government activities.

What is the difference between property taxes and. real estate taxes?

Used interchangeably but they aren’t the same. Real estate tax is a type of property tax – not all property taxes are real estate taxes. Real estate taxes are assessed on real property like your home and other property taxes like personal property taxes are assessed on tangible and movable property you own like vehicles.

How is Property Tax Calculated? 

Property taxes are usually computed by multiplying the property’s value by the levy rate:

Assessed Value x Levy Rate = Property Tax 

For example, if the assessed value of your home is $200,000 and your county levy rate is 2% then your property tax would be $4,000 ($200,000 x .02 = $4,000). Your property tax bill is typically paid annually to your tax assessor or it can be split monthly and paid with your mortgage payment. Your lender will then send the property tax you paid with your mortgage payment to your tax collector.

What is the Assessed Value of Property?

The assessed value of your home is not to be confused with the price you paid for it or the amount you could get for it if you sold it – these are referred to as the “appraised value” or “market value.” The local government’s tax or property tax assessor determines the assessed value of your property. This assessed value is usually lower than the property’s market value. This is beneficial to you because your property tax will be based on the reduced value.

The process of determining your property’s assessed value is rather simple. It should be listed on your most current property tax bill, or you can look for your property on your property tax collector’s or assessor’s website.

What is a Levy or Tax Rate? 

Local governments and authorities decide the levy or tax rates, which vary based on where the property is located. Within a state, property tax rates can vary greatly, and neighbouring cities may have different rates.

It’s possible that instead of being expressed as a percentage, your levy or tax rate is expressed as a “millage rate.” Simply put, one mill is one thousandth of a dollar. If your local property tax rate is 10 mills, you will pay $10 for every $1,000 of assessed value of your property. So, if your home is worth $200,000 and you pay 10 mills, you will be taxed $2,000 ($200,000 x.010 = $2,000).

To help lower the tax cost, taxing authorities may only tax a percentage of the assessed value rather than the entire amount. It’s crucial to keep in mind that these property tax rates aren’t set in stone and might alter at any time. To avoid a surprise tax bill, stay up to speed on your county or city’s property tax rate and assessments.

Why Do We Have Property Taxes?

Property taxes are used to pay a variety of programmes and projects that have a direct impact on people’s lives. Local government initiatives such as police officers, fire fighters, libraries, road maintenance, community pools, and community events are funded by property taxes. Property taxes fund these services and programmes that benefit the community where you live.

What is the difference Between Personal Property Tax and Real Estate Tax? 

Property taxes and real estate taxes are two phrases that are frequently used interchangeably. While it is true that real estate taxes are a sort of property tax, they are not all property taxes.

Personal property taxes are charged on moveable personal property such as vehicles, whereas real estate taxes are exclusively assessed on real property such as your home or leased property. Businesses must also pay property taxes on personal property such as machinery, fixtures, office furniture, and equipment that they own or lease.

How Do I Pay Property Taxes?

People usually pay their property tax bill in one of two ways:

1. When your tax bill arrives (either annually or every six months), you pay it online or by check.

2. If you have an impound account and your lender sets aside the money you pay for property taxes in an escrow account to pay the property tax bill, you can pay it monthly when you pay your mortgage. Consider an escrow account to be a savings account for when your property tax bill arrives.

What Happens If I Don’t Pay My Real Estate Taxes?

If you don’t pay your property taxes, the taxing authority may place a tax lien on your property. A tax lien is a legal claim that is made against your property or other financial assets. A tax lien does not entitle the local government to custody of your property, but if you sell it, the local government may be entitled to some or all of the proceeds to cover unpaid property taxes.

How Do I Deduct Property Taxes on My Tax Return?

You can deduct up to $10,000 ($5,000 if married filing separately) in combined property taxes and either state and local income taxes or sales taxes on your tax return if you itemize your deductions (rather than taking the standard deduction). Don’t worry about tax rules; Equity Taxation will ask you a few basic questions and then tell you which tax deductions and credits you qualify for based on your answers.