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Tags: finance, property tax, calculate property tax values
 Everyone living in the United States knows that if you own any property you pay a property tax on them. The Law Dictionary by Steven H Giffis defines it as a levy “imposed by municipalities upon owners of property within their jurisdiction based on the value of such property.” These are usually collected by the local level entity—town, county, or city.
Generally property tax covers (1) land; (2) any and all improvements made on the land such as a house or a building, and/or; (3) personal things such as automobiles or watercraft. For this article we’ll focus on the realty and all accompanying improvement therein meaning that the value of your house and the land that it sits in determines the amount of the levy that you need to pay.
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The levy is called Ad Valorem and is based solely on ownership of the the land and improvements which you pay regardless of whether or not you are actually residing on the land, you are using it or not, or even whether it is generating income for you or not.
Depending on which state(s) and even which local level jurisdiction your land is located in the rates will differ. As these are a drain to your financial well being understanding how to calculate property tax values is important to have so that you, as an owner, would be able to budget yourself or if you are planning to acquire realty you would have an idea of roughly how much the financial bite would be.
The valuation of how much property tax you will be paying in begins with an assessment by your local tax assessor office. They either use their own appraisers or hire private ones to do the evaluations. They look at both the value of the land or site and the value of the buildings or improvements found within its boundaries.
This assessment is usually based on market value although income approach, replacement costs, or other accepted methods of valuation can also be used. The International Valuation Standards Committee has defined market value as the amount a willing buyer would pay a willing seller for something in an arms-length transaction where both seller and buyer are knowledgeable and prudent and there is no outside induced compulsion.
The assessor then uses the established local assessment ratio to come up with the assessed value. This ratio can range anywhere from the full 100% to any lesser percentage. Once an amount has been assessed it is then multiplied by the tax rate to get the payable amount. The property tax rate, also known as the millage rate or mill levy is expressed as a percentage of the assessment of the asset.
To calculate the property tax payable you multiply the assessment by the mill rate and divide by 1,000. To give you a better idea of how it all works lets do a hypothetical wherein you own land in a certain state A. Let’s say the assessment of the land is $200,000, the assessment ratio of the county where it is located is at 75% and the mill rate is at 25.
So to calculate: $200,000 (market value) x 75% (assessment ratio) = $150,000 (assessed value) x 25 (mill rate) = $3,750,000 / 1,000 = $3,750 in payable property tax. Be advised however, that your jurisdiction may also have a non-ad valorem or special assessment levy which comes as fixed charges regardless of your asset's value.
With almost yearly increases in property tax rates knowing how much you should be paying and how it is calculated will give you the ability to appeal should you feel the amount you are paying is unjust.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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