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Learn How Property Taxes Are Calculated

Understanding how your property taxes are calculated can often feel as unraveling one of the strangest mysteries of the world. However, it’s vitally important that you get your arms around this tax, if you are subject to it, as it’s often a large investment that you may be saddled with for a lifetime.

Property taxes can vary tremendously, not just between different areas of the nation, but between different parts of the same municipality.

Just how do property taxes work? Shouldn’t they be the same for everyone?

First, Real Property Versus Personal Property

When we refer to”property taxes,” what we really mean is”real property tax.” The term”real property” means the land you have and everything that is permanently affixed to it.

For example, if you have a stick-built house, a garage, a shed with a permanent foundation — these are all things that would be considered”real property.”

On the other hand, you may also have”personal property,” that is basically anything else that you have that may have a title and can be moved, even if it takes a bit of work.

Your fishing boat, your car and, to confuse matters further, most manufactured homes, are deemed personal property — not real property. Manufactured homes specifically can be a bit of a sticky wicket because you can often affix one to a real property in such a way that it also becomes real property.

For the purposes of this discussion, when we say”property tax,” we are talking about real property, less any specially qualified manufactured homes.

Your Property Taxes Are Made Up of Layers

Most men and women understand that their property taxes are calculated based on the value of their property, but there are tons of homeowners that don’t realize that what we all generally refer to as”property tax” are actually several different taxes smashed to one greater tax sandwich… or layer cake, if you may.

Your home is very likely located in a variety of intersecting tax jurisdictions that can vary greatly from area to area. The taxing jurisdictions that homeowners most often encounter are the:

  • City
  • School district
  • County
  • State
  • Fire district
  • Cemetery district
  • Library district

Each of these layers will have their own tax rate, making the calculation of your property taxes much more confusing. And by the way, the value used to figure out your taxes isn’t necessarily your home’s appraised value, it’s something called the assessed value.

An Aside for Assessed Values

Property tax assessments are often one of the most confusing concepts for many new homeowners. But you have to have a handle on it in order to understand your property taxes. The assessed value absolutely is what your taxes are based on, but there’s no set way for any tax jurisdiction to determine this amount.

In some places, your property’s assessment and your home’s market value may be more or less the same, in others, the assessment is a stated percentage of the market value. In addition, these values might be updated yearly, every other year or just when the home is resold.

If you meet certain conditions, you can also have your assessment frozen so that your taxes can only increase if the rate itself increases (and even then, there are a few states that can freeze your actual tax rate).

Put another way, knowing how your property assessment will operate is sort of the major to how everything behind the scenes works. With that, all the layers of government grabbing at your wallet are pretty meaningless.

Fortunately, if you are just looking to simple math, this figure is provided for you by your taxing bodies. We recommend you call or drop to your local tax assessor’s office to get a detailed explanation of your specific tax situation as every taxing body may be slightly different.

Wait, What’s a Mill Levy?

You’ve probably noticed the term”mill levy” tossed around if you’ve been reading up on property taxes. A mill levy is just another way to describe the tax rate that’s being applied to your real property’s assessed value.

One mill is equal to a dollar a $1,000 of the real estate’s assessment, or 1/1,000 of a penny. The mill rate that determines your tax is set by the taxing authorities themselves.

For example, let’s say your property is assessed at $250,000 (by whatever method). If your county mill levy is 5, then for each $1,000 of assessed value, your invoice goes up $5. In this case, that’s a very reasonable sounding $1,250.

Remember, however, this is just 1 layer of the tax layer cake. You will want to add all the layers together to get your actual tax bill. Get your calculator ready and pour yourself a stiff drink — this could take awhile!

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