As its name implies, property tax is a type of tax assessed on real estate which is usually based on the value of your property. Though the bill seems reasonable in most cases, it is still important to know how your taxes are calculated and make sure you’re not being overcharged. Read on to know the factors that contribute to your property tax.
Assessed Value Of The Property Being Taxed
Property taxes are usually based on the value of the land, wherein the higher the value, the higher your property taxes will be. The worth of your land changes over time so is your property tax liability.
It starts with determining how much the land is worth. You can have your land assessed by a local assessor, a professional who will review all relevant information about your property to make an estimate of its overall value.
- Cost Method
In this method, the assessor estimates the value of your property based on how much it would cost to replace that property. Let’s say your property is an old one. The assessors will then determine the amount of depreciation that took place and the worth of the property if it was empty.
- Sales Evaluation
The assessor will determine the value of your property with respect to the similar sales which have taken place in the area. Factors like the location of the property, overpricing, underpricing, as well as the overall state of the property will be reviewed. The assessor will look at what similar properties are selling under the recent market conditions.
- Property Improvements
The worth of a land is usually assessed by (1) the value of the land itself and (2) the total value of whatever is built on that particular site, like a house or any kind of infrastructure. The sum of these two values shall help determine the total value of your property.
- Income method
In this method, the property is assessed based on how much income you would make if the property were rented. Factors, like costs for maintaining and managing the property, insurance, taxes, and returns you could anticipate from it, will be examined.
Current Local Government’s Tax Rates
Your local tax authority plays a big role here.
The property taxes collected by the government serve as a source of income, and they usually come in the form of a percentage. The tax rate can vary over time depending on the amount of tax revenue that needs to be raised by the taxing agency.
In the U.S., Many municipalities apply the tax rate “per mill.” The mill levy or millage tax is simply a tax rate levied on the property value (One mill is just 1/10 of one cent). For example, in a $1,000 of an assessed property, one mill is equivalent to one dollar.
- Other Local Agencies’ Tax Rates
Aside from the local government, other local agencies, like the ones serving the local community, also rely on property tax revenues.
Doing the math
After determining the different factors that make up your property tax, finding your total liability can be a piece of cake.
Firstly, add your tax rates up to get the total property tax rate you have to pay. Then multiply the total property tax rate by your property value. If your total tax rate is 2% and your property is worth $500,000, then we multiply 0.02 × $500,000 = $10,000.
Carmina Natividad is a savvy writer for Depreciator, an Australian-based business specializing in Tax Depreciation Schedules. Being an enthusiast of pursuing financial security herself, she writes and shares self-help articles focused on personal finance, tax planning, and property investing.March 31, 2017