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 SALT cap (OBBBA 2025+: $40,000, phased out above $500,000 MAGI to a $10,000 floor; pre-OBBBA 2018–2024: $10,000). Several states offer exemptions and credits, including homestead exemptions, senior citizen freezes, and veterans' exemptions.
How it works
Property tax is levied by county and local governments on the value of real property — land, homes, commercial buildings, and improvements — and is typically the main funding source for local schools, fire departments, roads, and other public services. Your bill is the product of your property's assessed value and the local tax rate (sometimes called the mill rate), and assessed value is itself usually a percentage of fair market value set by the jurisdiction's assessment ratio, not the full market price.
Bills go out annually or semi-annually, though most homeowners with a mortgage pay monthly into an escrow account that the lender uses to pay the tax bill on their behalf, so the cost is folded into the regular mortgage payment rather than paid as a separate lump sum. If you think your assessed value is too high relative to comparable sales, you can appeal it with the local assessor.
Property tax paid is deductible on your federal return as part of the itemized SALT deduction, but that deduction is subject to the SALT cap — $40,000 for 2025 and later years under OBBBA, phasing down for MAGI above $500,000 to a $10,000 floor, versus a flat $10,000 cap for 2018 through 2024. States also offer their own relief separate from the federal deduction, including homestead exemptions, senior citizen freezes, and veterans' exemptions that reduce the assessed value before the tax rate is even applied.
Example: calculating a property tax bill
A home has a fair market value of $450,000. The local jurisdiction's assessment ratio is 70%, so the assessed value used for tax purposes is $315,000 rather than the full market price.
At a local tax rate of 1.8%, the annual property tax bill comes to $5,670. If this owner itemizes and combines this with state income or sales tax, the total still has to fit within the $40,000 SALT cap that applies for 2025 and later years.
Frequently asked questions
How is my property tax bill calculated?
Can I deduct property tax on my federal return?
Can I appeal my property's assessed value?
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. Under OBBBA (2025+), capped at $40,000 per return ($20,000 MFS) with phaseout above $500,000 MAGI to a $10,000 floor. Pre-OBBBA (2018–2024) the cap was $10,000 flat.
SALT Cap
The annual limit on the federal deduction for state and local taxes. Pre-OBBBA (2018–2024): $10,000. OBBBA (2025+): $40,000 ($20,000 MFS) with phaseout above $500,000 MAGI to a $10,000 floor.