All About Property Taxes
If you own property in any form you would have come across the term Property Tax. Even though that’s a term you would like to avoid. For all those individuals that haven’t heard this term before, it’s a tax that you need to pay based on the value of your property.
The value of the property is usually assessed by any of the local or municipal bodies.
The Property Tax then helps the local bodies to maintain the roads, public schools, electricity and other similar services. The tax rates differ and vary from state to state and are mostly decided by the local bodies. Thus it makes a lot of sense to check the tax laws in the locality or area where you want to purchase a property. The simple and straightforward calculation for the tax is latest property evaluation value multiplied by tax rates for the area.
Definition of Property
Any property that is legally defined by a state body qualifies to be a real property and thus is eligible for property tax. The property might include land, house, building or any beautification or functional addition to the property that is immovable but adds value to the same. For an example, you can consider the addition of a barn to a farm to be one such instance or addition of a swimming pool to a house. These additions not only increase the functionality and beauty of the house but in turn also help in pushing the cover value of the property.
How they are calculated
Property taxes play crucial role in the proper functioning of a local body. Because it acts as a source of income. Not all the states in the country charge income tax to their residents. In such states, the proper maintenance and functioning of the amenities largely depend on accumulation of the Property tax. It is a common practice to assess the value of a house by more than one public entity, so as to have a more comprehensive evaluation. Local government bodies then set the mill rates for properties. The taxes collected from these properties are then capitalized in making the services of the community. That could be police, public education, and infrastructure more robust. It’s a known fact that the values of properties change on a regular basis. Thus regular evaluation ensures that fluctuations are well factored into the equation. The following are some of the terminologies that you should be aware of when it comes to property tax.
Assessed value helps local bodies to determine the amount of tax that they can levy on a specific property. Once an inspector comes up with the appropriate value as per various parameters, the same is then used for calculating property taxes. Usually, the assessed value is on the lower side as compared to the property’s fair market value.
It is the amount that you pay in taxes per $1000 worth of your property. The Millage rate is always expressed in the form of pennies and multiplication with the assessed value provides you with the taxes that you owe to the state. 5 mills would translate to $0.005 and for a property of value $200,000 the taxes turn out to be $0.005 * $200,000 = $1000.
Fair Market Value
The fair market value helps to calculate the assessment ratio of the property. There is almost always the difference between the valuation provided by the inspector and market value of a property. The assessment ratio differs based on the state that you live in. A house with a market value of $400,000 having an assessed value of $350,000 has an assessment ratio of 87.5%. So the final calculation for owed taxes becomes assessed value*assessment ratio*mill rate.
Whether you like it or not, the property taxes stay with you forever. Therefore taking a close look at the property tax for your state makes a lot of sense.