A property tax bill is part of the homeownership experience. Local governments collect these taxes to help fund projects and services that benefit the entire community—things such as roads, schools, police, and other emergency services. There are two primary ways to pay your property tax bill: as part of your monthly mortgage payment or directly to your local tax office.
- Local governments collect property taxes to help pay for services and projects that benefit the community.
- Property taxes are an ad valorem tax, so the tax is based on the value of the property.
- If you have a mortgage, your property tax may be rolled into your monthly mortgage payment. Otherwise, you pay the tax office directly.
- You may also owe taxes on personal property for items such as your car, boat, or RV.
Ad Valorem Tax
Property taxes are an ad valorem tax, meaning the tax is based on the assessed value of an item. A property assessor determines the value of your property by estimating its fair market value (FMV)—the price a willing buyer and seller would agree upon in an open market.
To do so, the assessor reviews the sales records of comparable properties in the area—known as “comps”—that are similar in condition, features, and size. The assessor may consider other factors, too, such as the property’s rental income history (or potential), replacement costs, maintenance costs, and any recent improvements you made to the property.
How Is Property Tax Calculated?
To determine your tax bill, the tax office multiples your property’s assessed value by the local tax rate. For example, if your home is assessed at $200,000, and the local tax rate is 1%, your tax bill would be $2,000. Of course, the higher the assessed value, the higher the tax bill.
Some local governments apply the tax rate to just a portion of the assessed value. This is known as the assessment ratio. If your home is assessed at $200,000, and your county has an assessment ratio of 80% and a tax rate of 1%, your tax bill would be $1,600 ($200,000 × .80 × .01).
How to Pay Your Property Tax
In general, there are two ways to pay your property tax bill: as part of your monthly mortgage payment or directly to your local tax office.
If you have a mortgage, your property taxes may be rolled into your monthly mortgage payment. If so, your lender divides your estimated tax bill by 12 and includes that amount in your monthly payment, along with the principal, interest, and private mortgage insurance—four costs collectively known as “PITI” (principal, interest, taxes, and insurance). For a $2,000 annual property tax bill, for example, you would pay about $167 a month. Your lender estimates your tax bill, so you’ll get a refund if you paid too much, or you might have to make an extra payment if the amount you paid comes up short.
You can find out the total amount of property tax you paid by looking at box 10 (“Other”) of IRS Form 1098. Your lender sends this to you by Jan. 31 if you paid $600 or more in mortgage interest the previous tax year. If you didn’t receive a 1098—and you should have—call your lender or find the information on your lender’s website. You may be able to lower your tax bill by appealing your assessment (if you think it’s too high) or finding out if you’re eligible for any exemptions.
Pay Your Local Tax Office
If you don’t pay your property tax as part of a monthly mortgage payment, you’ll pay the tax office directly. You should receive a bill in the mail that includes payment directions. Depending on where you live, you may have several payment options:
- By check or money order sent through the mail
- Online using a credit or debit card
- Online using an electronic check payment (eCheck)
- By telephone using a credit or debit card
In addition to the different payment options, you may get to choose if you want to pay the bill all at once or split it into monthly, quarterly, or biannual payments. Pay attention to any prepayment discounts offered—some municipalities provide a discount if you pay early.
If you use a credit or debit card to pay your bill, you may be charged a “convenience” fee—a flat dollar amount or a percentage of the bill, typically 2% to 3%.
Personal Property Taxes
Real estate—your land and any property attached directly to it—is called “real property.” When people talk about property taxes, they’re usually referring to this type of property. Of course, real property tax may not be the only property tax you owe.
Depending on where you live, you may also owe taxes on personal property. Personal property is classified as tangible, which includes cars, boats, RVs, and aircraft, or intangible, consisting of things like stocks, bonds, insurance policies, and intellectual property. Like real property taxes (those on your home), personal property taxes are an ad valorem tax, meaning they’re based on the value of the property.
Tangible personal property taxes typically fall from year to year as the property’s value decreases. The value of intangible personal property taxes, is made using a method known as calculated intangible value (CIV).
The Bottom Line
Everyone who owns real property is on the hook for property taxes, whether it’s for a house, farm, or vacant land. While you can’t get out of paying property taxes, you can deduct up to $10,000 in combined state and local taxes—including property taxes.
If your property taxes are rolled into your mortgage payment, note that your lender must pay the tax on your behalf before you can claim the deduction. Contact your lender if you have any questions about the payment schedule.