Credible
Get Rates
  • Refinance Student Loans
    • Compare Options
      • Best Refinancing Companies
      • Lender Reviews
      • Refinance Student Loans
      • Student Loan Consolidation
    • Learn the Basics
      • Fixed vs. Variable Rates
      • Forgiveness Programs
      • Consolidation vs Refinancing
      • Repayment Plans
      • More on Student Refi
    • How to
      • Consolidate Your Student Loans
      • Pay Off Your Student Loans
      • Lower Your Interest Rate
    • Tools
      • Current Student Loan Refi Rates
      • Refinancing Calculator
      • Repayment Calculator
      • Student Loan Score Calculator
  • Student Loans
    • Compare Options
      • Private Student Loans
      • Parent Student Loans
      • Law School Loans
      • Medical School Loans
      • Graduate Student Loans
    • Learn the Basics
      • Student Loan Limits
      • Living Expenses
      • Applying for FAFSA
      • Federal Student Loans
      • Student Loan Interest Rates
      • More on Student Loans
    • How To
      • Pay for College
      • Take Out Student Loans
      • Apply Without Cosigner
      • Apply for Student Loans
      • Pay for Grad School
    • Tools
      • Best Private Student Loans
      • Current Student Loan Rates
      • Student Loan Interest Calculator: Estimate Payments
      • Lender Reviews
  • Personal Loans
    • Compare Options
      • Best Personal Loan Lenders
      • Lender Reviews
      • Get Personal Loan Rates
    • Learn the Basics
      • How to Qualify
      • How to Get a Loan
      • Where to Get a Loan
      • Personal Loans with Cosigner
      • Pay Off Credit Card Debt
      • More on Personal Loans
    • Best for
      • Credit Card Consolidation
      • Debt Consolidation Loans
      • Home Improvement Loans
      • Good Credit
      • Fair Credit
      • Bad Credit
    • Tools
      • Current Personal Loan Rates
      • Personal Loan Calculator
  • Mortgages
    • Compare Options
      • Mortgage Refinance
      • Home Loan
      • Best Mortgage Refinance Companies
      • Best Mortgage Lenders
      • Mortgage Preapproval
      • Mortgage Payment Calculator
    • Compare Rates
      • Mortgage Refinance Rates
      • 30-Year Fixed Refinance Rates
      • 15-Year Fixed Refinance Rates
      • Home Loan Rates
      • 15-Year Fixed Mortgage Rates
      • 30-Year Fixed Mortgage Rates
    • Learn the Basics
      • How to Buy a House
      • How to Refinance Your Mortgage
      • How to Get the Best Rate
      • Cash-Out Refinancing
      • More on Home Loans and Refi
    • Pay Off Mortgage
      • Home Equity to Pay Off Debt
      • Paying Off Mortgage Early
      • Mortgage Refinance Cost
  • Insurance
    • Insurance Products
      • Insurance Products
      • Learn more about home insurance
    • Compare Options
      • Compare Insurance Quotes
      • Home Insurance Guide
    • Learn the Basics
      • What Home Insurance Covers
      • How Much Home Insurance You Need
      • Estimate Your Home Replacement Cost
      • How to Change Home Insurance
  • Company
    • About
    • Reviews
    • Blog
    • Lenders
    • Editorial Guidelines
    • FAQs
    • Press
  • Find My Rate
Advertiser Disclosure

What Is Property Tax? Everything Homebuyers Need to Know

Property tax can strain your budget, but local governments, schools, and other entities rely on it to pay for vital services.

Daria Uhlig Daria Uhlig Updated June 16, 2021

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

You’ll incur many costs beyond the purchase price of the home — closing costs, homeowners insurance, and broker fees, to name just a few. One expense you might often overlook is annual property tax, the amount of which varies depending on where you live and the value of your home.

Here’s what you need to know about property tax so that you’ll be prepared when you get your bill:

  • What are property taxes?
  • What do property taxes pay for?
  • Calculating your property taxes
  • How to pay property taxes
  • How to save on property taxes

What are property taxes?

Property tax is the tax paid on real estate. Taxing jurisdictions — like school districts, townships, municipalities, and counties — levy property tax to generate revenue to pay for infrastructure and services.

Property tax is typically an ad valorem tax, meaning the amount is based on the value of the property being taxed. Taxing jurisdictions assess properties to determine their value, and then apply a tax rate to that value to calculate the dollar amount the property owner must pay.

Property tax vs. real estate tax: What’s the difference?

As the term applies to real property, property tax is always a real estate tax but a real estate tax isn’t always property tax.

Property tax is imposed on the property itself, whereas other types of real estate tax, such as a transfer or stamp tax, can be imposed on the transaction that transfers ownership.

Shopping around for a new home can be stressful. Fortunately, Credible streamlines the mortgage selection process and makes comparing multiple lenders easy. You can see prequalified rates from our partner lenders in just a few minutes — checking rates is free, and you don’t even have to leave our platform.

Credible makes getting a mortgage easy

  • Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.
  • We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.
  • A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.

Find Rates Now

Trustpilot

What do property taxes pay for?

All 50 states and Washington, D.C. rely on property tax, whether it’s levied by the state or, more commonly, by local governments and school districts.

Here are some of the costs your property taxes pay for:

  • Public schools
  • Police and fire protection
  • Road construction and maintenance
  • Water and sewer systems
  • Libraries
  • Government operations
  • Community services

Calculating your property taxes

The amount you pay in property tax depends on two factors:

  1. Local property tax rate
  2. Assessed value of the property

To calculate your property tax bill, local jurisdictions will multiply the property tax rate by the assessed value.

For example: If the effective property tax rate in your area is 2%, and the assessed value of your home is $300,000, your property taxes would come out to $6,000.

Property tax rate

Taxing jurisdictions set tax rates according to how much revenue they need to pay for the services and infrastructure they provide. Each jurisdiction sets its own tax rate, and the rate can change from year to year or stay the same.

The combination of all the rates you pay — school district, municipal and county, for example — is called the effective tax rate.

For example: Residents of Worcester County, Maryland, pay a county tax rate of $0.112 per $100 of assessed value. In addition, they pay their town’s tax rate, which ranges from $0.4559 to $1.1311 per $100 of assessed value. The effective tax rate equals the county tax rate plus the town tax rate.

Many taxing jurisdictions charge a tax rate per $1,000 of assessed value. The rate in those cases is referred to as a mill. One mill equals 1/1000 of $1 in assessed value — or, more practically, $1 per $1,000 of assessed value.

Assessed home value

Assessed value is the value of your home used to determine property taxes. To ensure all properties are evaluated the same way, your local government will employ a tax assessor to perform a property tax assessment.

When assessing your property, the assessor will look at what nearby homes have sold or assessed for to determine the assessed value.

The assessed value is not to be confused with either the appraised value or fair market value. While tax assessors and home appraisers use similar methods to determine value, their valuations serve different purposes.

Here’s how the three differ:

  • Assessed value: The value of the property determined by the tax assessor for tax purposes.
  • Appraised value: The value of the property determined by a third-party appraiser used for buying or selling purposes.
  • Market value: The estimated price at which your property would sell for in the open market based on several factors, including the overall condition of the home, the location, and the current market conditions.

The assessed value is a portion of the market value, so the assessed value is typically lower than both the appraised value and market value.

Properties are reassessed periodically, depending on your location. In the previous example of Worcester County, Maryland, properties are reassessed once every three years.

Learn More: When to Get a Refinance Home Appraisal and When to Skip

How to pay property taxes

Homeowners generally receive a single tax bill from the county that’s based on their effective tax rate. You’ll pay for your property taxes in one of two ways:

  1. Directly to your local tax office
  2. As part of your monthly mortgage payment

When paying your local tax authority directly, you can typically pay in person, over the phone, by mail, or online (via e-check, credit card, or debit card).

If you dedicate a portion of your mortgage payment to property taxes, your lender will place the money in an escrow account until the tax is due. The lender then pays the property tax on your behalf when the bill is due.

Good to know: Tax amounts can change over time. A reassessment, for example, can result in a different valuation, or a taxing jurisdiction might increase taxes to generate more revenue. In either case, your tax bill will change accordingly.

What happens when you don’t pay

Penalties for nonpayment can be severe. The first consequence is likely to be a tax lien, which is a claim against the property. The lien is a red mark on the title of the property and could make things difficult for you if you decide to sell later on.

Eventually, the taxing jurisdiction can recoup its loss by selling the lien at auction, in a tax sale. The person who buys the lien can then foreclose on the property, in which case you would lose the home.

How to save on property taxes

Property taxes can put a serious dent in your budget, but you might be able to reduce your bill or deduct your property tax on your tax return.

1. Find property tax exemptions you qualify for

Your state or county might offer relief programs or exemptions to make your property tax more affordable. One exemption you might encounter is a homestead exemption. This exemption protects some of the value of your home from creditors and reduces the amount of property taxes you have to pay.

Tax credits and rebates can also reduce your tax by an amount based on your income or let you claim a special tax deduction in the event your local property tax increases more than a certain amount.

Tip: Another option might be to defer your tax in exchange for having a lien placed on the property. The lien would be repaid when the home sells.

Learn More: The Tax Benefits of Owning a Home: Must-Know Deductions and Credits

2. Appeal your property tax assessment

If you think the tax assessor made an error in your assessment or you believe your property value has decreased since your assessment, you can appeal it.

The exact process depends on your taxing jurisdiction, but your appeal will likely result in a hearing where you can present evidence to prove your case. Note that you might be charged a filing fee.

3. Deduct property taxes on your tax return

Homeowners who itemize tax deductions can deduct state and local property taxes on their tax return. To qualify, the tax must be charged annually even if it’s collected more or less often than that.

The IRS limits your total state and local tax deduction, including income, sales, and property tax, to $10,000 ($5,000 for individual filers). You’ll claim the deduction by filling out the Taxes You Paid section of Schedule A (Form 1040).

form 1040 schedule A

About the author
Daria Uhlig
Daria Uhlig

Daria Uhlig is a contributor to Credible who covers mortgage and real estate. Her work has appeared in publications like The Motley Fool, USA Today, MSN Money, CNBC, and Yahoo! Finance.

Read More

Home » All » Mortgages » What Is Property Tax? Everything Homebuyers Need to Know

Homebuyer’s Guide to Taxes


  • What Is Property Tax
  • Property Tax Assessment
  • Tax Benefits of Owning a Home

Homeowner Tax Breaks

  • First-Time Homebuyer Tax Credits
  • Mortgage Credit Certificate
  • Mortgage Interest Deduction
  • Rental Property Tax Deductions

Tools and Resources

  • Get a Home Loan
  • Get Preapproved for a Mortgage
  • Calculator: Mortgage Repayment
  • Today’s Mortgage Rates
  • Lender Reviews

  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to share on Twitter (Opens in new window)

Related Articles

Home Insurance

Hazard Insurance: What It Is and What It Covers

Mortgage Refinance

Are Home Equity Loans Tax-Deductible?

Mortgages

Buying a Rental Property: Everything You Need to Know

  • Read More
    • Refi Student Loans
    • In School Loans
    • Personal Loans
    • Mortgages
    • Insurance
  • Resources
    • Lender Reviews
    • Loan Calculators
    • Student Loan Score Calculator
    • Data Insights
    • Debt Statistics
    • Sitemap
  • Compare
    • Student Loan Refinance
      • Current Student Loan Refi Rates
    • Student Loan Consolidation
    • Private Student Loans
      • Current Student Loan Rates
    • Personal Loans
      • Current Personal Loan Rates
    • Refinance Mortgage
      • Mortgage Refinance Rates
        • 15-Year Fixed Refinance Rates
        • 30-Year Fixed Refinance Rates
    • Home Loans
      • Home Loan Rates
        • 15-Year Fixed Mortgage Rates
        • 30-Year Fixed Mortgage Rates
    • Insurance
  • Top Lenders
    • Best Student Loan Refi Companies
    • Best Private Student Loans
    • Best Personal Loans
    • Best Mortgage Lenders
    • Best Mortgage Refinance Companies
  • Company
    • About
    • Reviews
    • Blog
    • Editorial Staff
    • Editorial Guidelines
    • News
    • Press
  • Legal
    • Terms of Use
    • Privacy Policy

© 2022 Credible


Credible Operations, Inc. NMLS ID# 1681276 | NMLS Consumer Access | Licenses and Disclosures
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Disclosure

Affiliated Business Arrangement Disclosure

Credible Operations, Inc., (“Credible”) has a business relationship with Young Alfred, Inc., (“Young Alfred”), an insurance broker. Please click here for the full Affiliated Business Arrangement disclosure form. You are not required to use Young Alfred as a condition for settlement of your loan.

Similarly, Young Alfred has a business relationship with Credible, a mortgage broker. Please click here for the full Affiliated Business Arrangement disclosure form. You are not required to use Credible as a condition to obtain access to any settlement services, such as homeowners or other insurance products.

Acknowledgement

By clicking “Accept” below, I/we acknowledge that I/we have read the applicable full disclosure form, and understand that any referrals by Credible for insurance settlement services or any referrals by Young Alfred for mortgage settlement services, may result in Credible, Young Alfred, its parent company, and/or its affiliates receiving a financial or other benefit.