Property Tax Guide: How Taxes Are Calculated and How to Appeal
Property taxes are the largest ongoing cost of homeownership after the mortgage, averaging $2,500 to $5,000 per year nationally and exceeding $10,000 in high-tax states. Unlike your mortgage rate, which is locked in at closing, property taxes increase over time as assessed values rise and local tax rates change. The assessment that determines your tax bill is an opinion of value, not a fact — and opinions can be challenged. Understanding how property taxes are calculated and when an appeal makes sense can save hundreds or thousands of dollars annually.
How Property Taxes Are Calculated
Property tax equals the assessed value multiplied by the tax rate (mill rate). If your assessed value is $300,000 and the mill rate is 1.5 percent (15 mills), your annual property tax is $4,500. The assessed value is determined by the county assessor based on market conditions, property characteristics, and recent sales of comparable properties.
Many states assess at less than full market value. California assesses at purchase price plus limited annual increases (Proposition 13). Other states reassess periodically or annually based on current market value. The assessment ratio (assessed value / market value) and the mill rate together determine your effective tax rate. Understanding your state's system is the first step to identifying if you are overpaying.
When to Appeal Your Assessment
You should appeal when your assessment is higher than the actual market value of your home, when similar homes in your neighborhood are assessed lower, or when the assessor has incorrect information about your property (wrong square footage, extra bathrooms, incorrect lot size). Property data errors are surprisingly common and are the easiest appeals to win.
Check your assessment for accuracy against your property's actual characteristics. Then compare your assessed value to recent sales of similar homes in your neighborhood. If your assessment exceeds what your home would actually sell for, or exceeds the assessments of comparable properties, you have grounds for appeal.
- Incorrect property data: wrong square footage, room count, or lot size
- Over-valuation: assessment exceeds recent comparable sales
- Unequal treatment: similar homes in the area are assessed lower
- Condition issues: assessment does not reflect needed repairs or depreciation
The Appeal Process
Start with an informal review with the assessor's office. Present your comparable sales data and any evidence of errors. Many overassessments are corrected at this stage without a formal hearing. If the informal review does not resolve the issue, file a formal appeal with the local board of review or assessment appeals board.
At the formal hearing, present comparable sales (3 to 5 recent sales of similar homes), evidence of property condition issues, and documentation of any data errors. Keep the presentation factual and professional. You do not need an attorney for most residential appeals, though property tax consultants (who typically work on contingency, taking 30 to 50 percent of the first year's savings) are available for complex cases.
Property Tax Exemptions and Deductions
Most states offer a homestead exemption that reduces the assessed value of your primary residence. Amounts vary from $5,000 to $75,000 depending on the state. Senior citizen exemptions, veteran exemptions, and disability exemptions provide additional reductions for qualifying homeowners. These exemptions must be applied for — they are not automatic.
Property taxes on your primary residence are deductible on federal income taxes, subject to the $10,000 SALT (state and local tax) cap that includes state income taxes. For homeowners in high-tax states, the SALT cap limits the deductibility. Property taxes on investment properties are fully deductible against rental income with no SALT cap.
Frequently Asked Questions
How often are property taxes reassessed?
It varies by state and county. Some jurisdictions reassess annually, others every 2 to 5 years, and California only reassesses upon sale or new construction. Check with your county assessor to understand the reassessment schedule in your area and when your next reassessment will occur.
What is a mill rate?
A mill rate is the tax rate expressed per $1,000 of assessed value. One mill equals $1 per $1,000. A mill rate of 15 mills means $15 per $1,000 of assessed value, or 1.5 percent. Multiply your assessed value by the mill rate (divided by 1,000) to calculate your annual property tax.
Can property taxes go down?
Yes. If property values decline (as in a market downturn), assessments should decrease accordingly. You can also request a reduction through appeal if your assessment exceeds market value. Tax rates can also decrease if local governments reduce spending or find alternative revenue sources, though this is less common.
Do I still pay property taxes after my mortgage is paid off?
Yes. Property taxes are an obligation to your local government, not to your lender. When you pay off your mortgage, the escrow account closes and you become responsible for paying property taxes directly to the county. Set up direct payments or save monthly for the annual or semi-annual tax bill.
How much can a property tax appeal save?
Successful appeals typically reduce assessments by 5 to 15 percent. On a $300,000 assessment with a 1.5 percent tax rate, a 10 percent reduction saves $450 per year. Over the period until the next reassessment (3 to 5 years in many jurisdictions), that is $1,350 to $2,250 in savings from a single appeal.