Property taxes are the most common way of state and municipal governments to raise revenue to meet their yearly obligations. Assessors determine real estate property taxes on an ad valorem basis, based on a percentage of the property value. The two major factors in determining the tax assessment for a parcel of real estate are the property tax rate, or mill levy and the assessed value of the property.
Tax Rate
The mill levy is the tax rate for a parcel of real estate. A mill is 1/1000th or $1.00 of tax for each $1,000 of assessed value. If the mill rate in a particular county is $4.00, and the assessed value of a piece of real estate is $200,000, the tax obligation will be $800.00. If the value of the property is assessed higher, the owner will pay a higher tax.
The type of property may determine the mill rate. Often residential, agricultural, and commercial properties are provided different mill levies. For instance, commercial property may be taxed at a higher or lower rate, depending on the jurisdiction than residential property.
Assessed Value
The assessed property value is a percentage of the fair market value. In some locations, the taxing authority may tax at 100% of the fair market value. Others may determine the assessed value as a lower percentage of the fair market value. Often, the authority may provide exemptions to reduce the assessed value, depending on the owner. A municipality may have a homestead exemption for residential property. Exemptions for military veterans and senior citizens are common in many taxing districts.
The tax assessor must periodically determine the fair market values of the properties to be assessed, usually every few years. To do so, the assessor will provide a cursory appraisal of the fair market value of the property. Many factors are considered in calculating the fair market value:
- the total acreage or lot size;
- the age or depreciation;
- the square footage of buildings and other improvements;
- the type of materials used to construct improvements;
- the type and quality of foundation;
- the number of rooms, baths, and amenities.
After utilizing these factors, the assessor will compare the property to similar properties sold in the location. A minimum of 3 comparable properties are normally used. Depending on the real estate market for a particular neighborhood, the assessor may use comparable sales from the same street, or may have to locate similar properties from several blocks away.
Challenging a Tax Assessment
Real estate owners have the ability to challenge their tax assessment. Though the mill rate cannot usually be challenged, the assessed value of the property often is. The tax bill will provide information on how to challenge or appeal a tax assessment. If not, the taxing authority will have information necessary for appeal.
The property owner should review their tax statement first to determine if the property is properly classified, whether residential, vacant, agricultural, or commercial. The owner should also determine if all applicable exemptions were applied. If there is a homeowner exemption to lessen the assessment and it was not applied, the owner should appeal the assessment.
The owner should also determine how the assessed value was determined to see if errors were made. The assessor may have misstated the square footage of the property, the number of improvements or fixtures or other factors that would affect the fair market value of the property. Most importantly, the owner should determine the comparable sales that were utilized by the assessor. The owner should at minimum, locate and drive by the comparable properties to determine if they are, in fact, similar to the owner’s property.
Rachel is a blogger for Propel Tax, a financing company offering property tax loans in Houston, TX. You can follow Propel Tax @PropelFS.