Property Taxes

Quick Takeaways

Property tax is calculated by the local government and is based on the real estate of each individual, though some jurisdictions tax tangible personal property, like a boat, as well.
Property taxes are than used by the municipality to fund sewer, water, and road repairs, maintain parks, fund schools, libraries, and other institutions.
Not paying your property taxes can result in a lien against your property.

Source: Property Taxes (Investopedia, Apr. 13, 2022)

Property taxes are a large part of homeownership in the United States. Depending on which state and/or city you live in, your property tax rate will vary. Your property tax is based on an assessment of the value of your home, and the money from these taxes funds municipal entities like schools, libraries, public safety, roads, sewers, water, and more.

The value of your home is dependent on many things, all of which are taken into consideration when determining your property taxes. Whether your town is adding a new school, fire station, or redoing a road or you have added a finished attic to your home, your property taxes will reflect the value added to your residence.

Some homeowners feel that their property taxes are too high, meaning that their house is not actually worth as much as it was assessed for. In this historic housing market, home values have skyrocketed, but we have yet to see the same level of increase from property taxes. If you feel your property taxes are unfair, there are official channels to challenge them.

What Are Property Taxes?

Property tax is generally considered a regressive tax, given that it is based on monetary values of land, improvements to land, personal property or intangible property rather than income levels.

While all state-level U.S. jurisdictions have some form of real property (land and structure) taxation, far fewer impose taxes on intangible personal property (such as stocks, bonds, patents, and copyrights) and tangible personal property (like boats, cars, and business equipment). Residential and commercial real estate are most often a source of local tax revenue, while personal property taxes are often a source of state tax revenue.

How Are Property Taxes Used?

Revenue from property taxes can be used to fund local government servicespdf for community safety such as law enforcement and fire departments or funding education through school districts or libraries.

How Do You Calculate Property Tax?

Property taxes are based primarily on a home’s value, and state officials and local governments make the final determination of the property tax rate imposed on residential homeowners.

Property tax rates varypdf across and within states due to differences in statutory tax rates and the different methods utilized by local governments to compute their real property tax base.

Typically, the taxing jurisdiction assesses the real property value by approximating the amount the property would sell for in a prospective transaction. On the other hand, some jurisdictions based the real property value on acquisition value of the property or the on last sale price. Still other jurisdictions assess the income the property could generate.

In addition, some jurisdictions may impose a different statutory tax rate for residential and business property.

Lastly, while local governmental entitiespdf levy most property taxes, some states may also levy (or are permitted to levy) a statewide property tax, which can be in addition to the local property tax.

See References for more information.

References

NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require a password.

Property Tax Issues

Property Tax Anger is Growing Across America (Newsweek, Jan. 29, 2024)

“According to a new UChicago Harris/AP-NORC poll, around two thirds of Americans surveyed believe their property tax rate is too high. The poll was conducted in 2023, between December 14 to 18, with 1,024 participants across all 50 states and the District of Columbia.”

Property Tax: Calculator & How Property Tax Works (NerdWallet, Jun. 9, 2023)

“Failing to pay your property taxes can result in the taxing authority placing a tax lien on the property. A tax lien is a legal claim against property or financial assets you own or may have coming to you. It’s not a seizure of your assets, but it is a claim on them. If you sell the asset, the government could be entitled to some or all of the proceeds.”

The Best and Worst Property Taxes by State (The Balance, May 31, 2022)

States have a wide variety of property taxes, even differing on limits and caps to how much residents can be taxed. The states with the lowest property taxes are Alabama, West Virginia, Arkansas, South Carolina, Louisiana, Mississippi, Indiana, Tennessee, Kentucky, Wyoming. The states with the highest property taxes are New Jersey, Connecticut, New Hampshire, New York, Illinois, Massachusetts, Vermont, Rhode Island, California and Texas.

The Assessment Gap: Racial Inequalities in Property Taxation (The Quarterly Journal of Economics, 137(3), 2022) E

“We document a nationwide “assessment gap” that leads local governments to place a disproportionate fiscal burden on racial and ethnic minorities. We show that holding taxing jurisdictions and property tax rates fixed, Black and Hispanic residents face a 10%–13% higher tax burden for the same bundle of public services.”

Instructions for Schedule A (Form 1040) Itemized Deductionspdf (Internal Revenue Service)

This form from the United States Internal Revenue Service provides detailed instructions so you can properly deduct your property taxes from your annual taxes. The form is updated annually.

Tips for Managing Property Taxes and Finding Tax Rates (HouseLogic)

This helpful guide form HouseLogic explains where to find your local tax rates, how property taxes are calculated, what to consider for your budget, and how federal tax deductions come into play.

Property Taxes Impact on Property Value

Property Taxes Have Been Rising. Here’s What It Means for Housing (HousingWire, Nov. 7, 2023)

“An increase in property tax has more of a direct impact on the monthly mortgage bill, Chamberlin noted. A $1,000 increase in the property tax, for example, will increase the monthly payment on a mortgage by $83 whereas a $1,000 increase in the home price only adds about $7 to the monthly bill assuming interest rates of around 7% on a 30-year fixed loan. “

Where Do People Pay the Most in Property Taxes? (Tax Foundation, Sep. 12, 2023)

Features an interactive chart with Median Property Taxes Paid by County, 2021 (5-year estimate).

Unprecedented Gains in Colorado Home Values Preview Budget-Busting Property Tax Hikes Next Year (The Denver Post, Apr. 26, 2023)

“Gains in property values don’t correlate directly to the gain in property taxes that property owners will receive next January, assessors emphasized. Yet they are a key part of the formula and provide a rough guide to what is coming. And what is coming could be budget-busting for households already stretched by higher food, transportation, utility and property insurance costs.”

How Will Proposed Changes to Philadelphia’s Property Taxes Affect Homeowners (Mansion Global, Apr. 20, 2023)

“Real estate taxes in Philadelphia are calculated at a rate of 1.3998% of the assessed market value of the property, Mr. McCann said. If the bill is approved, homeowners will be able to take advantage of a 1% discount if they pay their next tax bills in full by the last day of February 2024. “Most people in luxury homes will pay their taxes in advance to save that money,” he said. Taxes have risen sharply in the past 10 years, Mr. McCann said. Reassessments carried out in 2022, following a three-year hiatus due to the pandemic, saw residential property values increase by an average of 31% this year. The proposal to reintroduce the discount is part of a wider effort to ease the financial burden of property ownership, which includes an increase in a tax exemption available to primary residents”.

Neighborhood Institutions and Residential Home Sales: Evaluating the Impact of Property Tax Exemptions (Journal of Real Estate Finance & Economics, Feb. 2022)

“By far, the most extensively studied tax-exempt nonprofit property type is religious institutions. Do et al. ([18]) found a negative influence of churches on surrounding home prices up to 850 ft away. In a direct rebuttal to Do et al. ([18]), Carroll et al. ([14]) found a positive relationship between proximity to a church and home prices; specifically, prices decrease at a decreasing rate as the distance from a church increases.”

Property Tax Rates and House Prices: The Impact of Relatively High and Low Property Tax Rates (Journal of Property Tax Assessment and Administration, 2020) E

“We investigated three property tax issues and summarize our research. First, what is the impact of property taxes on home values, given that the literature is inconsistent on this effect? Second, do higher property tax rates constrain house price appreciation? Third, how are lower property tax rates tied to the household tenure? Our conclusions suggest that some local governments actually collect less tax revenue as a result of excessive effective tax rates.”

Challenging Your Property Tax Bill

Appealing Your Property Tax Assessment: When, Why and How To (Bankrate, Oct. 6, 2022)

“Another way to determine if the value deemed by your county is fair is by examining other homes that were built in the same year and have similar square footage and improvements, along with other factors. You can include this information (perhaps with additional documentation, such as photos) with your appeal to help make your case.”

How to Appeal Property Taxes (House Logic)

“Ask a real estate agent to find three to five comparable properties — or comps in real estate jargon — that have sold recently. Alternatively, check a website like realtor.com® to find approximate values of comparable properties that are very similar to yours in size, style, condition, and location. If you’re willing to shell out $375 to $450, you can hire an appraiser to give you a professional opinion of your home’s value.”

Eight Key Steps When Challenging A Property Tax Assessment (Forbes, Dec. 1, 2020)

The following eight steps will help you successfully challenge your property tax assessment: do you due diligence when choosing an attorney and comparing local taxes, get a market analysis, take pictures of your property, contact your REALTOR or broker, schedule an appeal, contact the assessor’s office, have backup data at the ready, and compare data on local homes.

Useful Websites

Property Tax (Tax Foundation)

Quarterly Summary of State & Local Tax Revenue (QTAX) (U. S. Census Bureau)

Significant Features of the Property Tax (Lincoln Institute of Land Policy)

eBooks & Other Resources

eBooks.realtor.org

The following eBooks and digital audiobooks are available to NAR members:

How to Invest in Real Estate & Pay Little or No Taxes Use Tax Smart Loopholes to Boost Your Profits By 40% (eBook)

Books, Videos, Research Reports & More

As a member benefit, the following resources and more are available for loan through the NAR Library. Items will be mailed directly to you or made available for pickup at the REALTOR® Building in Chicago.

Property Taxes in Illinois—What is the Effect of Rapid Increases and Large Drops in House Prices on Property Taxes?pdf (University of Illinois, 2011) [PDF link]

Challenging the Conventional Wisdom of the Property Tax (Cambridge: MA: Lincoln Institute of Land Policy, 2010) HJ 4120 B14

The Worst Tax? A History of the Property Tax in America (Lawrence, KS: University of Kansas Press, 1996) HJ 4120 F57

How to Reduce Your Property Taxes (Miami, FL: Genesis Press, 1995) HJ 3241 Ad5

Reduce Your Property Taxes (Los Altos, CA: Crisp Publications, 1992) HJ 4120 T97

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