Property taxes are figured based on your home's taxable value, rather than just the actual fair market value of the home. Knowing how the taxable value of your home is figured for property tax purposes helps you at the very least understand how your property tax bill is figured. Plus, it might even tip you off to a mistake in the calculation of your property taxes that you could challenge in order to lower your bills.
Taxable Value Formula
To figure the taxable value of your home, first subtract any exemptions you're eligible for, if any. For example, some states might offer to exempt a certain amount of your home's value from property taxes altogether. Then, multiply the appraisal value of your home by the assessment rate to find the home's taxable value. If you want, you can continue to find your property tax bill by dividing the result by 1,000 and multiply it by the mill levy for your locality. For example, say you have a home worth $150,000, a $15,000 exclusion, a 20 percent assessment rate and a mill levy of 35. Subtract the $15,000 exclusion from $150,000 to get $135,000. Then, multiply $135,000 by the assessment rate of 20 percent to get $27,000. Next, divide $27,000 by 1,000 to get $27 and multiply by 35 to find your property tax bill is $945.
The appraised value of your home equals the fair market value -- what a willing buyer would pay you if put your home up for sale. How often the appraised value changes depends on your local rules. For example, some areas might appraise property annually while others might revalue your home every couple of years. In addition, some localities limit the amount that your home's value can increase over a certain time period. For example, your home's value might not be able to increase by more than 6 percent per year or 20 percent over a five-year period.
The assessment rate refers to the percentage of your home's value that is subject to property taxes. Sometimes, localities tax different types of property, such as commercial versus residential property, at different rates to shift the property tax burden. For example, as of 2013, only 11.5 percent of the value of resident property in Lawrence, Kansas, is subject to property taxes, while 25 percent of the value of commercial and industrial property is counted in determining property taxes.
Change in Value and Taxes
A change in the taxable value of your property won't always result in a change in your property taxes. The mill levy rate is set based on the total revenues the government needs to raise relative to total value of property in the locality. So, if the government still needs the same amount of money and everyone's property value went down 10 percent, your property taxes will stay the same because your property's value relative to the total value of all property hasn't changed. The good news is that if your property value went up 10 percent, your taxes won't necessarily increase, for the same reason.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."