How Are Property Taxes Assessed?

Your property tax assessment helps determine just how big your property tax bill will be, making understanding how it’s calculated important to accurately predict how much you’ll owe. Knowing how a property tax assessment works can help you determine how big your annual bill will be so you can budget accordingly.

What Is A Tax Assessment?

A tax assessment determines the value of a piece of real estate. Tax assessment is usually conducted by a government assessor who uses the assessed value of a property to calculate the amount of tax due on it. Regardless of the type of home you own, you can expect to pay property taxes.

If you’re making a mortgage payment, you’re likely paying property taxes already. That’s because mortgage lenders often like to estimate annual property taxes in advance and bundle them into your monthly bill. Under these circumstances, an escrow account is set aside to collect these funds each month and disburse them for payment when due, with no further action required of homeowners. A tax assessment can help you get a sense of whether these escrow payments are anticipated to rise or fall in the coming year ahead.

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How Do Property Tax Assessments Work?

Property taxes vary by county and state and are paid at regular intervals, most commonly annually. Several factors such as the assessed value of your home or other homes in your area and your local government’s budget needs can impact your property tax bill as well.

Different Types Of Property Tax Assessments

There are three main methods of property assessment that may determine the value of your taxes: the replacement method, the sales comparison method, and the income method.

Replacement Method

Under the replacement method, assessors estimate of how much it would cost to replace a building or structure using current market rates for expenses such as labor and material. The tax assessor will also take property depreciation into account when evaluating the structure. It’s a method of assessment most commonly utilized for specialized, unique or new properties.

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Sales Comparison Method

A method of property tax assessment in which the sale of properties with similar attributes are compared. Adjustments are made for unique property features when rendering a determination. The majority of residential real estate is assessed in this fashion.

Income Method

The income method involves tax assessors making an estimate of how much income might be derived from a real estate property if it were leveraged to help the owner generate an income. It requires the assessor to consider how much money the property might bring in as well as factors such as operating expenses, maintenance and upkeep, and the cost of insurance. Apartments, commercial properties, office buildings and retail properties are often assessed in this fashion.

Property taxes are taxes levied on real estate by governments, typically on the state, county and local levels. Counties levy and collect property tax to provide local services and support for independent local taxing districts, such as cities and schools. Property taxes are one of the oldest forms of taxation.

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