Owning your own house can be a wonderful thing! It’s an investment in your future, something to pass on to your children when you grow old, and a beautiful place to live that you can call your own.
Sadly, the U.S. Government has found a way to tax you for your investment. They’re called property taxes, and it’s something that you’ll have to pay every year. They’re not just paid to the federal government, but also to state and city governments. If you own property, you need to know how to calculate property taxes correctly:
1. Determine Value
In order to calculate the amount of taxes you owe on a property, you need to determine what the actual value of that property is. That doesn’t mean the amount you paid to buy the parcel of land, the empty lot, or the house. The value of land and property changes over time, so you need an up-to-date assessment of the property value.
Local and county assessors will determine the value of your home or property. You’ll need to contact an assessor’s office for information. They may be able to provide you with the value of your home and property over the phone/via email, or they may want to schedule an assessment visit.
Bonus: JPMorganChase has a Home Value Estimator that can give you a rough idea how much your land or property is worth.
Value is determined according to:
- Size of the property
- Nature of the property (house, empty lot, condo, office building, etc.)
- Use of the property (farming, residential, commercial, etc.)
- Desirability of the property
- Utility of the property
- General economic conditions
The assessor will determine the value of two things:
- The property value. This is the value of the land itself.
- The house value. This is the value of any construction built on the land.
The property tax will be calculated on the total value of the house (property + house value). So, if your home is worth $200,000 and your property is worth $150,000, you will pay property tax on $350,000.
2. Find Out the Tax Rate
Each state sets its own tax rate, and each county in the state will also have its own rate. The county may raise the property tax rate due to budget shortfalls.
Some states also determine property tax according to tax classes, which means according to the type of building or property that is being taxed. (See NYC’s example…)
It’s important to know what the tax rate for your state and county. To find out what the current property tax rate is, simply Google "your city + property taxes".
You also need to research if there are other taxes that will be levied on your property, such as taxes imposed by the school district.
(Note: School taxes are included in property taxes as a means of generating revenue for public elementary/secondary education.)
Once you know all the various property tax rates for your city, you can add them up. For example, your state tax is 2%, your county tax is 1%, and your school district tax is 1%. The total property tax will be 4% of the property value.
3. Multiply by Property Value
Using the examples given above, your home is worth $350,000, and your tax rate is 4% of property value. Let’s do the math:
$350,000 x 4% (0.04) = $14,000
The amount you owe on property taxes is $7,000 for the year.
The hardest part in all of this is determining the value of your home (as it involves calling in an assessor) and figuring out the property tax rate. Once you have all of this information, the calculations are nice and easy!
Do your eyes start to roll when it comes to working out your property tax?