How to Calculate Property Tax?

Buying and owning a home has many fees and your property tax is just one that you need to keep in mind. Property taxes, also known as real estate taxes, are levies charged by your local government to fund local public services like schools and emergency services. Your local government automatically calculates them, but estimating them could help you understand what you are paying for and catch any mistakes made by your tax assessor.

Property Tax Rates for All States

To calculate your property tax, you must know the assessed property value and your property tax rate. With these two numbers, you can easily get an estimate for your property tax, but the accuracy of your calculation will depend on how accurate your inputs are. If you do not know your property tax rate, you can estimate it using the average tax rate for your state or your county. The national median property tax rate is 1.09% in 2024.

Assessed Home Value

You may often hear people talk about the market value of a home, but this is not the same as the assessed home value. The market value of a home is the amount an informed buyer would pay for a property. This is the value of your home according to the broader real estate market. However, the assessed home value is the value of your property determined by your local tax municipality.

Tax assessors will evaluate your property as often as once per year and adjust their property value estimate when it is sold, bought, built, or renovated. This value is based on the property size, number of rooms, the purchase price, the neighborhood, and several other factors. While your assessed property value is usually close to the fair market value, if you are in a seller’s or buyer’s market, this value will be adjusted to reflect more balanced market conditions. The assessed property value will generally be lower than the market value.

If you are eligible for any deductions or exemptions, you can subtract this amount from your assessed property value and enter it in the calculator. Certain counties will only apply the property tax to a portion of the assessed property value.

Each local tax assessor’s office or local tax authority will have your property tax information available including your assessed property value on the Public Records Online Directory. If you disagree with your assessed property value, you can submit an appeal with proof that the assessed value is inaccurate to your local tax assessor.

Mill Levy (Millage Rate)

Your county’s mill levy is how much you need to pay per $1,000 of your assessed property value. A county with a mill levy of $10 implies a property tax rate of 1%. The median mill levy in the U.S. is $10.30 or 1.03%. This tax rate can vary significantly depending on government services and their required revenue. For example, a county with several schools and hospitals is likely to have a higher property tax than a county without them.

The mill levy is applied annually, so a mill levy of $10 on a $300,000 home would cost $3,000 per year. However, you will probably receive your property tax bill on a semi-annual basis for half of the annual levy. Using the same example, you would pay $1,500 every 6 months, but the total annual property tax is still $3,000. Generally, property taxes are paid on March 1st and September 1st.

How to Pay Property Taxes?

There are two ways to pay your property taxes:

1. Indirect Payment: Many lenders offer rolling your property taxes into your monthly mortgage payment. Lenders calculate your monthly property tax payment by taking your annual property tax and dividing it by 12. Generally, mortgage payments will include principal, interest, mortgage insurance, and property tax. You can find your property tax paid in box 10, labeled “Other”, of your IRS mortgage interest statement (Form 1098).
2. Direct Payment:If you are paying your property tax directly, you should expect to receive your property tax bill via mail or another specified way of communication. The tax bill is sent twice a year, and it should be paid every 6 months.

If your property tax is included in your monthly mortgage payment, your lender will take care of property tax payments. Your property tax payments will be put into an escrow account used to pay the bill when appropriate and some lenders require you to have this. If you are allowed and decide to cancel this escrow account, you will have to pay property taxes yourself. Your property tax bill should include payment directions. Generally, you should be able to pay with the following options:

• Sending money or a check through the mail.
• Paying online with a credit or debit card.
• Paying online with an eCheck (electronic check).
• Paying over the phone with a credit or debit card.

Property Tax Exemptions

If you think you might qualify for any property tax exemptions, you should check for yourself. No government agencies will voluntarily inform you that you are exempt from paying these taxes because the responsibility is on you.

1. Homestead Exemption: There are a number of homestead exemptions that allow homeowners to not pay property taxes. One homestead exemption protects homeowners from paying property taxes when their spouse dies. Homestead exemptions vary by state but can include homeowners above certain ages, those with low incomes, and homeowners with disabilities. There may be restrictions attached to this exemption, so it’s important to read the fine print.
2. Veterans: There are property tax exemptions for veterans if they use the home as their primary residence, served during wartime and were honorably discharged. Depending on the state, peacetime veterans may qualify or only disabled veterans may qualify. Income limits and residency lengths may also vary by state.
3. Home Renovations: If you renovate your home or make home improvements, you may not have to pay property taxes on the added value to your property. This includes installing renewable energy systems like solar panels or geothermal heating. However, you will still have to pay property taxes on the original home value.

If you do not qualify for the above exemptions, you should still check with your local tax assessor’s office. There may be exemptions that you do not expect and you could save thousands of dollars per year.

• Government properties are exempt from paying property taxes because the revenue generated from property taxes is used to fund public government services like schools.
• Non-profit hospitals that provide free or low-cost health care are exempt from paying property taxes.

While there are several property types that are exempt, most residential properties are subject to property taxes.

Which City Has the Most Affordable Property Taxes?

Looking at property tax rates on its own doesn't give much information. You'll need to consider the home values to calculate your annual property tax bill, and your household income. Having a high property tax bill might not be as unaffordable if your household income is high, compared to having high annual property tax dues with a low household income.

Among the top 50 metropolitan areas in the United States, the most affordable city is New Orleans, Louisiana. The median annual property tax in New Orleans is just $1,068, and while the median household income is also slightly lower at $48,600, it results in property tax making up just 2.2% of a household's annual income.

Close contenders in terms of property tax affordability are Oklahoma City, with property tax being 2.3% of annual household income, and Indianapolis at 2.5%.

One of the least affordable cities is Northern New Jersey, where property tax accounts for 12.4% of a household's median annual income. Other cities include New York City, where property tax takes up 11.8% of household income, and Boston at 6.9% of household income taken up by annual property tax.

Property Tax Rates - Top 50 Metro Areas

Source: U.S. Census Bureau - American Housing Survey

What States Don't Have Property Taxes?

Every state charges property taxes. Property taxes are an essential part of government funding used for essential public services like schools, emergency services, libraries, etc. With that being said, different states and counties charge different property taxes. Here are the 5 states with the lowest average property taxes:

• Louisiana - 0.18%
• Hawaii - 0.26%
• Alabama - 0.33%
• Delaware - 0.43%
• West Virginia - 0.49%