How are real estate taxes calculated?

Real estate taxes, or real property taxes, are the annual ad valorem taxes assessed by local governments on land and any improvements, including buildings and utilities. The money raised by this tax goes to support schools, fire and police services, libraries, parks, public transportation, roadway maintenance and social services. Locally voted bond issues for specific projects are also included.

Each year, a town, city, county or any other levying authority reviews its operating budget, comparing it to the total value of all properties it can tax, and sets a tax rate stated in mills. A mill is $1 of tax per $1,000 of value. The properties are evaluated by an auditor or assessor for their fair market value. The fair market value of a parcel can change when the property is improved, sold or reassessed through a regularly scheduled assessment. A parcel may be subject to real property taxes from more than one taxing authority.

A combination of the millage rate and the assessed value of the property determines the amount due for each parcel. For example, say a city lot with a house on it is assessed at $400,000. The city has a millage rate of 25.2, and the county has a millage rate of 10. The total tax for the year is $14,080: $10,080 for the city and $4,000 for the county.

Real estate taxes may be collected by the government in quarterly, semiannual or annual payments. Mortgage holders may collect and remit the taxes, applying a portion of each monthly mortgage payment to escrow, or the owner can remit directly to the taxing authority. Failure to pay the required taxes on time can result in penalties, liens, and loss of the property to auction or foreclosure.