Property taxes are one of a few major things to consider when purchasing a new home. Property tax rates can vary quite a bit depending on several factors, but one thing you can be sure of is that they will affect your yearly budget in considerable ways. While property taxes are an expense we need to consider, they greatly enhance our communities as we see our dollars put to work. Let’s take a closer look at what these taxes are used for, how they are calculated, and what you need to know about tax assessments.
What are Property Taxes Used for?
While most of us don’t like thinking about taxes, we like paying them even less. But property taxes are a vital part of any thriving community, and knowing more about where that money is going can really help take away some of the sting. Property taxes are largely responsible for funding local public schools, their maintenance, and teacher’s salaries. Unfortunately, this is why areas with higher homes prices or a larger tax base tend to have better school funding. Another important area that is funded by our property taxes is public safety. They pay for local workers such as 911 dispatchers, police and fire department employees, and public safety vehicles such as fire trucks. Last but not least, property taxes pay for the maintenance of streets, sidewalks, parking spaces, and even parks and other recreational spaces. As you can see, real estate taxes pay for valuable and tangible aspects that enrich our community.
How Are Property Taxes Calculated?
Real Estate taxes are calculated by using something called a millage rate or mill levy. One mill is equal to one-tenth of a cent, or $1 for every thousand dollars of assessed value. Generally, each county, city, and school district may all levy taxes on properties within their boundaries. Once they have made their annual budgets, the total amount needed in a county is then divided by the total assessed property value, creating a percentage rate. The city and school district use the same formula and their percentage is added to that of the county. This total percentage rate for county city and school district creates the overall millage rate for a given area. For example, if the tax rate is 3.2 %, it would be 32 mills, or $3.20 for every $100, and $32 for every $1000 of assessed value. Read more about possible ways to reduce your tax bill here.
What is a Property Tax Assessment?
A property tax assessment is what local governments use to find the value of a property for tax purposes. It is not the same as market value or the appraised value of a home. At times the assessed value is lower than the market value. While this does not in any way lower your property’s actual value, a lower assessed value does lower your tax bill. After looking at several factors such as similar properties, income generated from a property, replacement cost, and exemptions, the tax assessor values the property. The local assessment or equalization rate is then applied to the home’s value to calculate what is owed for taxes on your home. This rate is used when there are inequalities in certain areas and a higher or lower tax rate is required to balance things out, it often ranges from 80 to 90% of the assessed value, and from there, the tax rate or millage rate is applied.
Property taxes may seem overwhelming, but a solid understanding of their benefits, knowing what questions to ask, and becoming more knowledgeable about calculating them can go a long way to smooth out the road in front of you. Trust the Path and Post team to be your guide through one of life’s biggest transitions. Our real estate specialists are dedicated to finding out what’s most important to you and delivering a customized approach to your home buying experience. Contact us today to get started!