Homeowners across the country must pay property taxes each year in order to contribute to the costs of running the local schools, hospitals and other public programs. If you are like most homeowners, you don’t question when your tax statement comes in the mail. However, it is important to understand how property taxes are determined in order to make sure that you are not overpaying.
Determining Tax Rates
The tax rate that you pay on your property is a flat percentage that is levied on every local homeowner. Cities and counties vote to determine the local tax rates that will help pay for emergency personnel and equipment, new schools, libraries, parks and other public services, but a maximum tax rate may be determined by the state legislature. The taxes will also help the government set a reasonable budget for various departments and services.
The tax rate that is levied on the value of a propert
y is known as the mill levy, and one mill represents one tenth of one cent. Different entities may be able to levy taxes, including school districts, hospitals, the city and the county. These levies are then added together to determine the total mill levy.
Assessed Property Value
Once the mill levy has been determined, it is multiplied by the assessed property value. A tax assessor will evaluate your property in order to determine its value. His assessment will factor in recent improvements, maintenance costs and the price at which similar properties on the market are being sold. The assessor will then value the property according to a sales evaluation, the cost method or the income method.
If the assessor uses a sale evaluation to determine your property’s value, he will base the value on the sale of similar properties in the area. He will need to factor in the location, underpricing and ov
erpricing when making his decision.
The Cost Method
When using the cost method to determine the value of a property, the assessor determines the cost of replacing the property. If your home or building is not new, then he will factor in the property’s depreciation and its value without the building.
The Income Method
The income method bases the property value on how much you would earn if you rented out the property. The assessor must include the costs to manage and maintain the property, taxes, insurance and the anticipated return. He then multiplies the actual value of the home by the assessment rate, which is a uniform rate that is determined by the jurisdiction. This will give him the assessed value, which he will then multiply by the mill levy.
While every homeowner must pay property taxes, the taxes around the country are not determined using the same method. In order to make sure that you are paying the right amount, you should become familiar with the tax rates and the assessment method that is used in your area. You may also want to have your property professionally appraised in order to avoid paying too much in property taxes.
About the Author: Jayson is an employee at Republic Property Tax. He enjoys studying political science and governmental policy. He also blogs about ways homeowners can save money on their property taxes.