Property Tax
An annual tax levied by local governments on the assessed value of real property (land and buildings). Rates and assessment methods vary widely by jurisdiction.
Property tax is an ad valorem tax imposed by county and local governments on the value of real property, including land, residential homes, commercial buildings, and improvements. It is typically the primary revenue source for local governments funding schools, fire departments, roads, and public services.
The amount you owe is calculated by multiplying your property's assessed value by the local tax rate (also called the mill rate). Assessed value is often a percentage of fair market value, determined by the assessment ratio set by the local jurisdiction. For example, a home with a $400,000 fair market value and a 70% assessment ratio would have an assessed value of $280,000. At a tax rate of 1.5%, the annual property tax would be $4,200.
Property tax bills are typically sent annually or semi-annually, though many homeowners pay monthly through an escrow account managed by their mortgage lender. Property owners can appeal their assessed value if they believe it is inaccurate. Property taxes paid are deductible on your federal return as part of the SALT deduction, subject to the $10,000 cap. Several states offer exemptions and credits, including homestead exemptions, senior citizen freezes, and veterans' exemptions.
Related Terms
Assessment Ratio
The percentage of a property's fair market value that is used as its taxable assessed value for property tax purposes. Ratios vary by jurisdiction and property type.
Homestead Exemption
A reduction in the assessed value (or taxable value) of a primary residence for property tax purposes. Most states offer homestead exemptions to owner-occupants, reducing their annual property tax bill.
SALT Deduction
An itemized deduction for state and local taxes paid, including income tax (or sales tax) and property tax. Currently capped at $10,000 per return ($5,000 for married filing separately).
SALT Cap
The $10,000 annual limit on the federal deduction for state and local taxes (income/sales tax plus property tax), enacted by the Tax Cuts and Jobs Act of 2017.