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What is Property Tax? Definition, Types, and How it Works

What is Property Tax? Definition, Types, and How it Works

Whenever an individual or business entity owns a piece of property, it must pay a property tax. If you own property in the United States, the taxes you pay on your property will likely go towards features and utilities within your community. This includes:

  • Education
  • Road Maintenance
  • Highway Construction
  • Libraries
  • Law Enforcement
  • Fire Protection
  • Water and Sewer Repairs
  • Community Services

This type of tax is known as ad-valorem. In simpler terms, it is a tax based on the assessed value of an item or piece of property. They tend to be levied by local jurisdictions like counties or school districts. While these taxes make up a significant percentage of your overall tax cost, they are usually a lower portion than income or sales tax. Of course, this depends on the city, state, and county you live in, with some regions having a higher rate than others.

What is Personal Property Tax?

What is Personal Property Tax?

Some jurisdictions require a personal property tax, expanding the definition of taxable possessions beyond real estate. For a personal property tax, you may have to pay taxes on everything from a boat or car to furniture or equipment. This is usually referred to as tangible personal property, meaning it exists in the physical world. Intangible physical property would refer to digital copyrights, patents, investments, or any other item of value that you can not actually touch or handle.

In areas where a personal property tax is required, county and city governments will require a filer to provide a list of all of their tangible property. They will also ask for the filer to provide the cost they paid for the item and the fair market value, which may be based on a provided valuation table. Check your state and local laws to see whether this type of tax is required in your area, and look at the process to estimate and pay this tax.

How is Property Tax Calculated?

To calculate property tax, you'll need to have the assessed value of the property or item along with the current tax rate. You should have your approximate property tax amount by multiplying these two values.

Property Tax Calculation Formula

Yearly Property Tax = Current Tax Rate × Assessed Value

For example, let's say the tax rate in your area is 3%, and your home has been assessed to have a value of $300,000. You would take 300,000 and multiply it by 3% (.03), which would give you $9000. That means you would owe $9000 yearly in property taxes, which, broken up monthly, would come to $750. Whether you choose to pay annually, bi-annually, or monthly is up to you and whatever guidelines are set by your local tax bureau.

Finding the value of your home usually requires the assistance of a home or tax assessor. These assessors will estimate your property's market value, prepare any tax assessments, and send them to you. These professionals tend to work closely with local authorities to record property values and associated taxes.

A local governing body will decide the tax rate, usually the city or county government. State laws may also come into play, with some areas having laws that limit the assessed value your home can have compared to a percentage of its appraised fair market value. Usually, a municipal entity will hire a tax assessor who will determine the value of your property and compare it with the current tax rate. These assessments are based on the estimated fair market value your home or property currently holds. Sometimes these assessors hold an elected position; in other areas, the position is simply held or appointed by a higher governing body.

How is Property Tax Paid?

How is Property Tax Paid?

For the most part, your property tax will be automatically added to your monthly mortgage payment. However you pay your mortgage, whether through an escrow account or check, it's highly likely that your property taxes will be taken care of within this transaction. Some homeowners make their property tax payments according to the deadlines set by their local tax authority. This can mean only making a payment once or twice a year, but the amount will be significantly higher than the monthly payments. This option may also not be available, depending on the mortgage lender a homeowner utilizes.

Depending on where you live and what jurisdiction your property sits in, there are other ways in which you may be able to pay your property taxes. You can usually visit your local government's website to see the exact procedures. Many areas have an online portal where you can pay electronically and a phone number you can call to pay your tax over the phone. You can also usually mail checks or money orders to your local Property Tax Bureau (often housed in your city or county's treasury department).

How Can I Find the Value of My Property?

The easiest way to find the value of your property is by getting a property records report. A property records report provides data from thousands of databases, compiling it into one easy-to-read document. These reports can help you find a wide variety of information, including:

  • Property Value
  • Current & Past Owners
  • Purchase History
  • Tax Amount
  • Mortgage Records
  • Town Records
  • Property Details
  • Liens & Judgments
  • Neighborhood Info

This can help you calculate your property tax, determine if a property is being priced appropriately, and avoid falling prey to a real estate scam. These details are invaluable during the home-buying process and can help you make a more informed decision about what properties you intend to purchase. Real estate agents and listing services may not always provide all the available information about a home or property to help artificially inflate the price. With a property records report, you can look at all the relevant data available to decide for yourself whether a home is worth the cost.

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