The market value, assessed value and taxable value of your house are often nothing alike. The market value is what your house would sell for in the current market. The assessed value is what your county tax assessor reports the house is worth for purposes of calculating your property tax bill. Taxable value is the figure you actually pay tax on.
The assessed value of your home depends on a county tax assessor's determination. In some jurisdictions, the assessed value is also the taxable value, but in other locations, the taxable value may be lower because of certain adjustments such as a homestead exemption.
Assessed Value of Real Estate
There are plenty of reasons the county may assess your property for more, or less, than you can sell it for. County assessors check property once a year at most, and in some states it's every two or three years. That's lots of time for the market to change between assessments.
Some states also set limits on increases. In California, for example, assessed value can't go up more than 2 percent a year unless, for one example, a property changes hands. Especially if you own the home for many years, the market value and assessed value could be much different.
Real Estate Assessment Process
The assessment process works much like having your house appraised before a sale. The assessor records the details about your house -- age, amenities, number of rooms, square footage -- and looks for similar houses that sold in the previous few months. If, say, all the house on your street were build at the same time, on the same floor plan, and four of them sold recently for $200,000, that's probably how your house will be assessed.
Taxable Value of Real Estate
You may pay tax on the full assessed value of your house, but many local governments only tax some of it. California, for example, offers a $7,000 homestead exemption to residents who own their homes. An assessed value of $200,000 would be taxed at $193,000. Washington state offers exemptions for senior citizens and disabled residents whose annual income falls below $40,000.
Do note that taxable values on identical houses can turn out very differently if one house has a resident homeowner, say, and the other is a rental.
Tax Assessment Challenges
Tax rates and assessments are separate issues. Local government bodies such as city governments and school boards set the tax rate, based on financial need and politics. Assessments are supposed to be objective, based on value alone.
If you think your tax rate's too high, you can complain to your elected officials. If your assessment's too high, you can talk to the assessor's office. If you can show the market has dropped since the last assessment, you may get a reduction.
Homestead Exemption Is Not Deduction
If you qualify for a homestead exemption, this is not a deduction you take on your income tax return. It simply reduces the assessed value of your home, which lowers your property tax bill.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.