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Property Tax

Tax

Annual Tax on Real Estate

An annual tax levied by local governments on the assessed value of real estate, funding public services like schools, roads, and emergency services.

Definition

Property tax (also called real estate tax) is an annual levy imposed by local governments — municipalities, counties, or boroughs — on the value of real estate. It is the primary funding source for local public services: public schools, fire departments, police, roads, parks, and libraries. The amount is determined by multiplying the property's assessed value by the local mill rate (tax rate).

Property tax is calculated independently of income — it is owed regardless of whether the property generates income or even if the owner has a mortgage. In the US, property taxes are among the largest recurring costs of home ownership, averaging $2,000–$10,000+ per year depending on location.

Formula

Annual Property Tax = Assessed Value × Mill Rate ÷ 1,000

Assessed Value = Market Value × Assessment Ratio

Where the assessment ratio varies by jurisdiction — some assess at 100% of market value, others at 80%, 70%, or lower.

To convert between mill rates and percentage rates:

Effective Tax Rate = Mill Rate ÷ 1,000

A mill rate of 15 = 1.5% effective tax rate.

Worked Example

Your home has a market value of $500,000. Your county assesses at 90% of market value and has a mill rate of 22.

  • Assessed Value = $500,000 × 0.90 = $450,000
  • Annual Property Tax = $450,000 × 22 ÷ 1,000 = $9,900/year = $825/month

When budgeting for a home purchase, this $825/month needs to be added to your mortgage payment, homeowner's insurance, and HOA fees to understand the true monthly cost. Use the property tax calculator and home affordability calculator together.

Key Things to Know

  • Escrow inclusion: US mortgage lenders typically collect property tax monthly as part of the mortgage payment and hold it in escrow, paying the annual bill directly. Your mortgage payment includes PITI — Principal, Interest, Taxes, and Insurance.
  • High-tax vs low-tax states: New Jersey has the highest effective property tax rate in the US (~2.2%), while Hawaii has the lowest (~0.3%). The same $400,000 home costs $8,800/year in NJ vs $1,200/year in HI.
  • Homestead exemption: Most US states offer a homestead exemption that reduces the assessed value of your primary residence for tax purposes. In Florida, homeowners can exempt up to $50,000 of assessed value.
  • Senior and veteran exemptions: Many jurisdictions offer reduced property taxes for seniors, disabled individuals, and veterans — often requiring an annual application.
  • Tax lien risk: Unpaid property taxes create a tax lien on the property. If left unpaid long enough, the government can foreclose — this happens even if there is a mortgage on the property, and the tax lien takes priority.

Related Calculators

Property Tax Calculator →Estimate your annual US property tax by home value, assessment ratio, local tax rate, and exemptions. See your assessed value, monthly escrow amount, and effective rate on market value.
Home Affordability Calculator →Find out what price home you can afford based on your income, savings, and existing EMIs. Calculates maximum home price, loan eligibility, and required down payment.
Mortgage Calculator →Calculate your monthly mortgage payment, total interest, and amortisation schedule. Switch currency — USD, INR, EUR, GBP, CAD, or AUD. Free online tool.

Related Terms

LTVLoan-to-Value RatioDown PaymentDown PaymentMortgageHome Loan Product (US / Global)

Frequently Asked Questions

Property tax = Assessed Value × Mill Rate ÷ 1,000. The assessed value is determined by your local assessor, often set at 80–100% of the property's estimated market value. The mill rate (also called the millage rate) is set annually by local government — 1 mill equals $1 of tax per $1,000 of assessed value. A mill rate of 20 on a $400,000 assessed value means $8,000/year in property tax.
Yes. If you believe your property's assessed value is higher than its fair market value, you can file an appeal with your local assessment office. You will need comparable sales data (recent sales of similar nearby properties) to support your case. Appeals are often successful and can reduce your tax bill significantly — many jurisdictions see 20–40% of appeals result in a reduction.
Property tax paid on your primary home is deductible as part of the State and Local Tax (SALT) deduction on federal income taxes. However, since the 2017 Tax Cuts and Jobs Act, the SALT deduction is capped at $10,000 per year ($5,000 for married filing separately). For homeowners in high-tax states like New Jersey, California, or New York, actual property taxes often exceed this cap.
India has an equivalent called house tax or property tax, levied by municipal corporations (like BBMP in Bengaluru, BMC in Mumbai, MCD in Delhi). It is calculated based on the Annual Rental Value (ARV) or the unit area method, multiplied by the applicable rate. Unlike the US, Indian property taxes are generally much lower as a percentage of property value — typically 0.1–0.5% annually versus 0.5–2.5% in the US.
Yes. Significant renovations — additions, major remodels, new structures — typically trigger a reassessment because they increase the property's market value. Cosmetic upgrades like painting or flooring generally do not trigger reassessment. In some US states like California (Prop 13), assessed value only resets on sale, not renovation, which creates significant long-term protection from property tax increases.