If you’re wondering how property tax works, this article’s for you. In it, we’ll uncover what this tax is and how to calculate it so that you know what you can expect for your new property.
What Is Property Tax?
Interestingly, property tax is the largest source of tax income for local governments in most states. These taxes accounted for $577 billion worth of revenue in 2019, higher than revenue from sales tax, income tax, and corporate tax.
What Is It Used For?
Property taxes are used to fund many different local services. It usually goes toward local schools but can also be used for libraries, pools, law enforcement, fire services, and more.
How to Calculate It
Property taxes are a type of value-assessment tax or ad valorem tax. This is a tax based on the assessed value of an item. Property tax is based on the assessed value of the property.
If you’re buying a home, then you might be wondering whether you’ll owe property taxes for the entire year. The answer is not usually. In most cases, the tax that the buyer and seller will owe will correlate to the portion of the year that they each owned the property for. Make sure you check your purchase agreement to see who is responsible for what.
The amount of tax that you’ll owe from here on out will depend on two things:
The tax bracket that the property is in,
And the home’s assessed value.
If you’re not sure what the home’s assessed value is, you can contact your local tax assessor’s office. Sometimes, you can find this by entering the block and lot number on the assessor’s website.
Next, you need to determine the tax rate in your area. Once again, you can usually find it on your local tax assessor’s website or municipality website. Currently, the median property tax rate falls between 0.2 and 1.9%. In the Northeast, the average property tax rate is 1.41%. Once you have your tax rate, you multiply it by your property’s assessed value to get your estimated property tax. So if your home is $300,000 and your property tax rate is 1%, then you’ll owe about $3,000 each year. ($300,000 x .01 = $3,000)
Assessed value x tax rate = property tax.
How to Appeal Property Tax Assessments
Property values are on the rise in most housing markets, which means that property taxes are going up too. However, if you feel that your property is overvalued, you can dispute the assessment. Filing a tax appeal will cost you a filing fee, and you may want to consider enlisting an attorney to help.
Property taxes aren’t the most exciting part of being a homeowner. By being prepared and knowing what to expect, you’ll take away the element of surprise and help make those tax bills a little bit easier to manage when property tax time rolls around again.
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