What Is a Property Tax Assessment?

Property Tax Assessments Explained

A man performs a property tax assessment.
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Definition

A property tax assessment is a professional estimation of the market value of residential or commercial real estate.

Definition and Example of a Property Tax Assessment

Your property tax bill begins with an assessment of your property's fair market value. Taxes are then calculated on this basis at a rate set by the taxing authority for all homes and properties in a given area, sometimes called a "multiplier" or "mill rate."

Note

A mill rate is one-thousandth of a currency unit, or one-tenth of one cent: $0.001. You can also look at it as $1 per $1,000 of assessed value.

A property's tax bill would typically be arrived at by multiplying its assessed value by the mill rate and dividing the result by 1,000. For example, a property with an assessed value of $100,000 located in a municipality with a mill rate of 20 mills would have a property tax bill of $2,000 per year.

How Does a Property Tax Assessment Work?

Local governments use your assessment as the basis for calculating your annual property tax bill. Assessments are usually prepared on a specific date each year, and they're often based on recent sales of comparable properties in the area.

Property taxes are often the most significant source of revenue for governments. They pay for schools, parks and recreation, government employees' salaries and benefits, transportation infrastructures, local law enforcement, and fire departments. Some buildings and land are exempt when they're used for religious purposes.

The timing of tax assessments can vary by jurisdiction. They might occur once each year or every other year, or sometimes every five years or more. Some locations require assessments whenever a property changes ownership.

You can usually expect that your property's assessed value will increase somewhat, raising your property tax bill, especially if assessments only occur once every few years. Your property may be appreciating in value.

Note

Assessments can go down on occasion, for a variety of reasons. This doesn't necessarily mean that the fair market value of your property will be less, however. It might happen because you've qualified for certain exemptions that are subtracted from the assessed value, for example.

Property tax assessments can be flexible to a degree. Owners have a right to appeal assessments that they feel are way off. The downside is that you might have to act relatively quickly. Some areas confine appeals to a certain period of time after assessment notices are sent out.

Note

Contact your local tax assessor to learn the procedure in your area, but prepare to have documentation to support your case, such as an appraisal using comparable properties that are markedly different from your assessment.

Types of Property Tax Assessments

Governments typically assess a property by one of three methods: the replacement method, the sales comparison method, or (for business property) the income method.

  • The replacement method: Sometimes referred to as the "cost method," the replacement method estimates how much it would cost to replace a property based on current rates for labor and materials. Reasonable depreciation is deducted, and the value of the land upon which the structure sits is added on.
  • The sales comparison method: Also called the "market approach," the sales comparison method is based on the sales prices of similar properties in the immediate area. The value is adjusted upward or downward, depending on any unique attributes. The assessed value will increase if the assessed property has a swimming pool, and comparable sales in the area don't share this feature, for example. The assessed value will decrease if the property doesn't have a pool but comparable sales do. This method is very similar to that used by lenders to appraise property for mortgage purposes. 
  • The income method: Business property is typically assessed using the income method. This considers the amount of income the property typically generates, adjusted by factors such as business taxes, insurance costs, and operating and maintenance expenses. 

Do I Need to Pay Property Taxes?

Property taxes are an ongoing obligation. They don't end when you pay off your mortgage, even if your tax obligation has been included in your mortgage payment all along. Your property taxes simply become a separate bill when your home is paid off.

Note

Penalties and interest will accrue if you pay late, and you can lose your property to foreclosure if you don't pay at all.

Many governments allow property owners to claim exemptions to reduce their assessments, however. You might be eligible for a homestead exemption if you actually live in the residence, or for a senior exemption if you're retired. Many states also offer property tax exemptions for veterans. Some areas only allow exemptions for religious groups or not-for-profit groups.

You also can at least claim a federal tax deduction for property taxes you pay locally, although you must itemize your deductions to do so. This might not be in your best interest unless the total of all your itemized deductions exceeds the amount of the standard deduction for your filing status. You can't itemize and claim the standard deduction, too.

For tax year 2021, you can claim a deduction for up to $10,000 total in property, state, and local taxes. All of these taxes are included under the same $10,000 umbrella.

Key Takeaways

  • A property tax assessment estimates the fair market value of your property.
  • Annual property taxes are determined by multiplying the assessed fair market value against the local property tax rate.
  • Properties can be assessed by different methods, depending on whether they’re residential or commercial.
  • Many locations offer property tax exemptions to reduce your property’s fair market value and, by extension, your tax bill. 
  • Property taxes are deductible on your federal income tax return, but you have to itemize in order to claim them, and the deduction is subject to a $10,000 cap.

Frequently Asked Questions

Is there any way to lower my property taxes?

It depends on how your property taxes are calculated, as these vary by region, and whether there are ways to affect that method. For instance, you may be able to make a case to the assessor about why your property is worth less than their initial assessment, especially if you find an error in the assessment, or if you receive an appraisal that differs drastically. Assessors may also be willing to lower the value if you have owned your home for a long time, and the market has dropped significantly since you first purchased it.

Do I still need to pay property taxes after my mortgage is paid off?

The simple answer is yes. Regardless of whether you pay your property tax directly to the county or as arranged in conjunction with your mortgage payment (as there are many ways to pay), you'll need to pay property tax as long as you own the real estate. The tax has nothing to do with what you may owe or have paid into your mortgage, but instead arises from outside factors set by the state or locality to fund local government programs and services.

Are there any states without property taxes?

Property taxes exist at the local level, so if you're scouting out homes to buy, it makes sense to look at how much the county charges. That said, in 2021 the lowest median property tax rates were in Hawaii, Alabama, Delaware, and West Virginia.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. The Tax Foundation. “How to Calculate Property Tax Liability.”

  2. National Association of State Retirement Administrators. "State and Local Revenue."

  3. Georgia Department of Revenue. "Property Tax - Real and Personal Property - FAQ."

  4. California State Board of Equalization. "Changes in Ownership - Frequently Asked Questions."

  5. City of Philadelphia Board of Revision of Taxes. "Appeals."

  6. New York Department of Taxation and Finance. "How Property Is Assessed."

  7. Lewis County, Washington. "Treasurer's FAQ."

  8. Internal Revenue Service. "Publication 530: Tax Information for Homeowners (2021)," Page 3.

  9. Tax-Rates.org. "Property Taxes by State."

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