Property tax in real estate is a local government levy on physical property—land, buildings and other structures—based on a valuation set by an assessor. Homeowners, buyers and investors must understand property tax to accurately budget for ongoing housing costs and avoid surprises at closing.
In real estate, property tax is an annual charge imposed by counties, municipalities or other local jurisdictions on the assessed value of your home or land.
Revenues from property taxes fund essential community services: public schools, road maintenance, emergency response, libraries and parks.
Assessed value is the dollar amount a tax assessor assigns to your property, often a fixed percentage of its market value. Market value is what buyers would pay in an open market. The mill rate (or tax rate) is the amount per $1,000 of assessed value used to calculate your bill.
An assessor reviews comparable sales, property condition and location to set a valuation—sometimes updated annually or every few years.
Local governments multiply assessed value by a mill rate (e.g., 9.5 mills = $9.50 per $1,000 of value) or a straight percentage.
If market value is $400,000 and assessment ratio is 50%, the taxable value is $200,000. At 9.5 mills: 200,000 × 9.5 ÷ 1,000 = $1,900 annual tax.
Some areas limit increases with caps or offset changes via periodic revaluations, senior freezes or other adjustment rules.
County assessors set values, municipalities and school districts vote budgets that drive the mill rate, and treasurers collect the tax.
Taxes may be billed annually, semi‐annually or quarterly, with specific due dates published by the local tax office.
Unpaid taxes can incur interest, penalties and eventually a tax lien or even foreclosure if left unresolved.
Lenders often collect one‐twelfth of your estimated annual tax via escrow to ensure timely payment.
Buyers should factor taxes into their debt‐to‐income ratios, while investors model taxes against rental income and ROI.
Property tax can exceed insurance or maintenance, so it’s a critical line item in your annual housing budget.
Homestead exemptions, senior credits or veteran discounts reduce taxable value; eligibility varies by state or locality.
Qualified property tax payments may be deductible on your federal return if you itemize, subject to the SALT cap.
Review your assessment notice, gather comps, file an appeal by the local deadline and present evidence at a hearing.
Missing an appeal window means paying the assessed amount; missing payments yields penalties or liens.
Average rates range dramatically—from about 0.26% in Hawaii to over 2% in New Jersey—impacting affordability.
School bonds or infrastructure measures approved by voters can raise your mill rate year to year.
Many assessor websites and third-party platforms let you compare rates, exemptions and values across neighborhoods.
You may deduct up to $10,000 of combined state/local taxes (property, income or sales) if you itemize.
The SALT cap applies regardless of income, and standard deductions may exceed the benefit of itemizing for some taxpayers.
Assess whether your total state/local deductions will reach the $10,000 cap before choosing to itemize.
Sarah’s $350,000 home assessed at 60% equals $210,000 taxable value. With a 12 mill rate: 210,000 × 12 ÷ 1,000 = $2,520/year.
$2,520 ÷ 12 months = $210 escrow each month, added to her principal, interest and insurance.
After comparing comps, Sarah proved her home’s condition was over-assessed and won a lower value that cut her bill by $300.
Property tax is a critical component of homeownership costs, driven by assessed value and local mill rates. Buyers, investors and homeowners should review their local assessor’s website, use online calculators to estimate taxes, explore exemptions and consult a tax professional to optimize deductions.
