Define Property Taxes

By: Steve Lander | Reviewed by: Ryan Cockerham, CISI Capital Markets and Corporate Finance | Updated March 06, 2019

Property taxes are taxes that the government levies based upon the value of what you own, instead of what you earn or spend. Homes and other real estate are frequently taxed, but real estate taxes aren't the only types of property tax. Many jurisdictions also levy property taxes on personal property like cars or even business assets like machinery.

Tip

Property taxes are taxes paid that are based upon the value of property, which can include real property and personal property. Since property taxes correspond to asset values, they're also sometimes called ad valorem taxes.

Property Tax Definition

"Property tax" is a tax that is assessed, typically by a local government such as a city or county, against a hard asset, like a house. Every homeowner is familiar with property taxes, as they must be paid on a regular basis (usually quarterly, twice per year or once per year). Sometimes your property taxes are paid to your mortgage company, who holds the money in escrow and then pays the taxes when they're due. Either way, anyone who owns land and buildings must pay property taxes.

Property tax isn't just a house tax, though. Personal property, which is anything that isn't real estate, can also be taxed, but not every state does it.

Exploring The Mill Rate

Property taxes are sometimes called millage taxes because they are frequently charged on a "per mill basis." A mill rate is equal to a rate per thousand dollars. For example, a mill rate of $10 per $1000 of value would lead to $5,500 in property taxes on a $550,000 house.

Determining Property Values

Property taxes consist of two variables. While the mill rate determines how much tax you pay on the value of the property, the assessed value determines what the property's value is. Different governments use different methods to assess property values, including setting the value on the basis of what you paid for the property or periodically changing it based on market conditions. Once your tax assessor determines the value of your house for tax purposes, it applies the mill rate to the property value.

If you feel like your property taxes are too high because the assessor has overvalued your home, most municipalities or counties have a way to try to change that. You can file an appeal with the assessor and try to provide proof that the house is worth less than its assessed value, and if you're successful, you can reduce your tax bill.

Other Property Taxes

Your house isn't the only asset that you own on which you're paying property taxes. Many states, counties or cities levy a property tax on your vehicles as a part of your registration fee. Other vehicles, including watercraft and airplanes are also subject to property taxes. In addition, businesses also pay personal property taxes on their tangible assets like machinery and furniture in some communities.

Property Tax Deductions

If you itemize your income taxes, you get a portion of what you spend on your property taxes back. However, under the Tax Cuts and Jobs Act signed into law in December 2017, deductions for payment of property taxes are capped for 2018 and onward. If your combined state and local income tax paid, added to your property tax paid, is more than $10,000, you're capped at $10,000 for your deduction.

In addition to allowing you to deduct your real estate property taxes, the IRS also lets you write off all of your personal property taxes on Schedule A. Unfortunately, you lose the property tax deduction if you have to file the Alternative Minimum Tax.

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About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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