What is a Property Tax
Property tax is a real estate ad-valorem tax, calculated by a local government, which is paid by the owner of the property. The tax is usually based on the value of the owned property, including land. The local governing body will use the assessed tax to fund water and sewer improvements, provide law enforcement and fire service and other items deemed necessary.
BREAKING DOWN Property Tax
Collected property taxes are used by the governing body of the jurisdiction in which the property is located. The money funds education, road and highway construction, public servants, and other services that benefit the community-at-large. Property tax rates and the types of properties taxed vary by jurisdiction. As such, when purchasing a property, it is essential to scrutinize the applicable tax laws.
In most Organization for Economic Co-operation and Development (OECD) countries, immovable property tax represents a low proportion of federal revenue when compared to income taxes and value-added taxes. However, the rate in the United States is substantially higher than in many European countries. Many empiricists and pundits have called for an increase in property tax rates in developed economies. They argue that the predictability and market-correcting character of the tax encourage both stability and proper development of real estate.
Determination and Use of Property Tax
Determination of property taxes is achieved by multiplying the property tax rate by the current market value of the lands in question. Most taxing authorities will recalculate the tax rate annually. Almost all property taxes are levied on real property, which is legally defined and classified by the state apparatus. Real property includes the land, structures, or other fixed buildings. Personal property, such as televisions and clothing, are not subject to property taxes.
Ultimately, property owners are subject to the rates determined by the municipal government. A municipality will hire a tax assessor who assesses local property. In some areas, the tax assessor may be an elected official. The assessor will assign property taxes to owners based on current fair market values. This value becomes the assessed value for the home.
The payment schedule of property taxes varies by locality. In almost all local property tax codes, there are mechanisms by which the owner can discuss their tax rate with the assessor or formally contest the rate. When property taxes are left unpaid, the taxing authority may assign a lien against the property. Buyers should always complete a full review of outstanding liens before purchasing any property.