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Looks like we pay taxes on everything. A portion of your income, a portion of the goods purchased, and even a percentage of the value of your home are taxed.
If you don’t plan ahead, property taxes can be an unexpected cost for new homeowners. While property taxes have an important purpose, they can be one of the costliest and most surprising aspects of homeownership. According to 2020 data from the Tax Foundation, a Washington DC-based nonprofit organization that monitors tax policies, the highest property tax rates belong to the state of New Jersey at 2.13%. On the other end of the spectrum, Hawaii has the lowest property tax rate, at 0.31%. These numbers may seem small, but they add up and can range from $ 200 to $ 10,000 per year depending on where you live.
That’s why it’s important to pay attention to property taxes, how they are calculated, and the different ways to pay them before buying a home.
What is property tax and how does it work?
Cities tax landowners as a means of generating income that funds community services and needs, such as infrastructure, schools, hospitals, and fire departments.
Homeowners are taxed based on the value of the property and the local tax rate. This means that the amount you will pay in taxes is determined by the value of your home and where you live.
How to calculate property tax
Many real estate sales sites, like Zillow and Redfin, will provide a property tax cost estimate on every listing online. Many real estate agents will also have a general idea of local rates. But if you want to accurately calculate how much you’ll pay in property taxes, you need two essential pieces of information:
- Estimated land value
- Your local tax rate
You then multiply the estimated value of the property and multiply it by the tax rate like that:
Taxable value x tax rate = property taxes
The estimated value of a property is an objective measure of the value of a home. It is usually determined by a local tax assessor, and it is reassessed periodically. While this is similar to the market value of your home, the two numbers are not always the same.
“The estimated value takes into account the general quality and condition of the property, the value of local properties, square footage, house features and market conditions,” said Tricia Turner, real estate agent and founder of the Tricia Turner Properties Group in Texas.
Building nearby homes or desirable amenities – like public transportation or shopping centers – can also increase the estimated value, said William Matthews, real estate investor and author of “Everything I Needed To Know About The City.” money I learned from my broke friends @ $$. “
The tax rate is a percentage of the assessed value that you owe in taxes. It varies by location and type of property. Property taxes are also influenced by the needs of the municipality. If your city needs more money to fund schools or infrastructure, for example, it can raise the tax rate to generate income.
You can find the tax rate in any region by visiting the official government website for your city, town or county. You can search the Internet for: “[Your city] property tax rate. Most official government websites have .gov in the web address.
Here are some examples of how property taxes are calculated in the cities of Los Angeles, Westchester and Charlotte.
|Tax rate (2019-2020)||Home value assessed||Property tax (per year)|
|Los Angeles, CA.||1.2%||$ 500,000||$ 6,000|
|Westchester, New York||1.62%||$ 400,000||$ 6,480|
|Charlotte, North Carolina||0.34%||$ 400,000||$ 1,360|
|Freehold, New Jersey||2.13%||$ 400,000||$ 8,520|
|Honolulu, HI||0.31%||$ 400,000||$ 1,240|
What is the property tax used for?
Property tax is generally one of the biggest sources of income for a city, town or county. For example, it helps finance salaries, supplies, construction costs, and other resources for public school systems. Property taxes also fund major municipalities such as law enforcement, libraries, fire stations, and court systems. It is typically used to finance local infrastructure such as roads, water and sewer systems, and garbage collection.
How to pay property tax
There are generally two ways to pay property taxes:
- Directly in your city or department.
- Through your mortgage lender.
If you choose to pay taxes directly to your city or county, you will receive an invoice in the mail and can send a check or pay online. They are usually due in January of each year.
Think carefully about whether you prefer to pay your taxes directly or through your mortgage lender. Each approach has its advantages and disadvantages.
But according to Matthews, most homeowners go for the second option. “The majority of homeowners have their property taxes locked in their monthly mortgage payment. This means your mortgage company is setting aside a portion of your monthly mortgage payment to pay your property taxes when they are due, ”Matthews said.
Here are the differences between the two methods:
|Pay directly to the city or county||Pay using escrow funds|
|You control how and when to send your payment.||Your taxes are paid automatically by your lender, so you don’t have to worry about it.|
|You run the risk of missing your tax bill or sending your payment late, resulting in penalties.||Your monthly mortgage payment is higher to reflect the money your lender pays in taxes on your behalf.|
|You have the option of paying once a year or quarterly.||You pay an estimated portion of your taxes monthly.|
Property tax faq
Where do I pay my property taxes?
If you pay your taxes directly, you will receive an invoice with payment instructions on your city or county website, or you will mail them a check. If your lender pays on your behalf, they will take part of your monthly mortgage payment.
Why do we have to pay property taxes?
Every municipality is slightly different, but most property taxes are used to fund the essential public services we all rely on: schools, hospitals, police and fire departments. Although cities have other sources of revenue (such as sales tax), property taxes often generate some of the largest sums of money.
How can I find my local property tax?
Start by looking for a tax information page on your city or county website. Taxes are common knowledge, so you will be able to see the tax rate and even search for your specific property.