How Property Taxes Are Calculated
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Tax = (assessed value - exemptions) x tax rate, where assessed value is often a fraction of market value and the rate is the sum of overlapping local levies. A $350,000 home assessed at 100% with a $25,000 homestead exemption and a combined 22-mill rate owes (350,000 - 25,000) x 0.022 = $7,150 per year.
Property tax is a local tax. The rate, the way value is assessed and the exemptions available are all set at the state, county, municipal and school-district level — which is why two similar homes an hour apart can have very different bills.
Key takeaways
- Assessed value is not always the same as market value — many jurisdictions use a fraction (assessment ratio).
- A mill equals $1 of tax per $1,000 of taxable value, or 0.1%.
- Exemptions such as a homestead exemption reduce the taxable value before the rate is applied.
- Escrowed tax payments are recalculated after each new bill, which is why they change over time.
- Assessment caps and reassessment-on-sale rules can make a new buyer's bill very different from the prior owner's.
Run the numbers with the Property Tax Calculator.
The basic calculation
Tax = (market value x assessment ratio - exemptions) x tax rate. Some jurisdictions assess at full market value (a ratio of 100%), others at a fraction of it. Exemptions such as a homestead exemption reduce the taxable value before the rate is applied.
Worked example: full market-value assessment
A home has a market value of $350,000. The jurisdiction assesses at 100% of market value, offers a $25,000 homestead exemption, and the combined local rate is 22 mills.
- Assessed value: 350,000 x 100% = $350,000.
- Taxable value after exemption: 350,000 - 25,000 = $325,000.
- Convert 22 mills to a decimal rate: 22 / 1,000 = 0.022 (2.2%).
- Annual tax: 325,000 x 0.022 = $7,150.
- Monthly escrow amount: 7,150 / 12 ≈ $596.
Second example: fractional assessment ratio
Some states assess homes at a percentage of market value rather than 100%, which makes the mill rate look higher without the tax bill actually being higher — the two numbers must be read together, not separately.
- Same $350,000 home, but this jurisdiction assesses at 40% of market value with no exemption applied and a higher-looking 55-mill combined rate.
- Assessed value: 350,000 x 0.40 = $140,000.
- Convert 55 mills to a decimal rate: 55 / 1,000 = 0.055 (5.5%).
- Annual tax: 140,000 x 0.055 = $7,700.
- The 55-mill jurisdiction and the 22-mill jurisdiction produce a similar tax bill on the same home value once the assessment ratio is factored in — comparing mill rates alone across states or counties without knowing the assessment ratio is misleading.
How the same home value produces different bills
Illustrative comparison of assessment method on a $350,000 home
| Jurisdiction style | Assessment ratio | Effective rate | Annual tax (before exemptions) |
|---|---|---|---|
| Full-value assessment | 100% | 22 mills (2.2%) | $7,700 |
| Fractional assessment | 40% | 55 mills (5.5%) | $7,700 |
| Fractional assessment, lower rate | 60% | 30 mills (3.0%) | $6,300 |
Millage rates
Many jurisdictions express the rate in mills. One mill is $1 of tax per $1,000 of taxable value, which equals 0.1%. A 25-mill rate is therefore 2.5%. Your total rate is usually the sum of several overlapping levies: county, city, school district and special districts.
Common exemption types
- Homestead exemption — reduces taxable value for an owner-occupied primary residence in many states.
- Senior or disability exemptions — additional reductions available in some jurisdictions, often with age or income limits.
- Veteran exemptions — reductions available to qualifying veterans in many states, with amounts set locally.
- Agricultural or conservation-use valuation — taxes land based on current use rather than market value in some counties.
Why the rate you find online may be wrong
Statewide averages hide enormous variation. Rates also change annually as budgets are set, and some states cap how fast assessed values may rise for existing owners, meaning a new buyer can pay far more than the current owner for the same house.
For an accurate figure, look up the property on your county assessor or treasurer website, or read the tax line on a current listing's disclosure.
Appeals and escrow
If an assessment looks too high compared with similar nearby properties, most jurisdictions have a formal appeal window each year, usually requiring comparable sales evidence submitted by a stated deadline. If your lender escrows taxes, the monthly amount is recalculated after each bill, which is why escrow payments change over time even on a fixed-rate mortgage.
Common mistakes
- Assuming the seller's current tax bill will carry over after a sale, when many jurisdictions reassess at the new sale price.
- Using a statewide average rate to budget for a specific county or school district.
- Forgetting to apply for a homestead or other exemption you are eligible for.
- Not budgeting for an escrow shortage payment when the tax bill rises faster than the prior estimate.
- Comparing mill rates between two jurisdictions without checking whether both use the same assessment ratio.
- Missing the annual appeal deadline after receiving an assessment notice.
Practical considerations
When budgeting for a home purchase, do not simply copy the current owner's tax line from a listing. Ask the county assessor what the bill would look like if reassessed at your purchase price, since many areas reassess on transfer and the jump can be substantial in appreciating markets.
Frequently asked questions
Why is my assessed value lower than what my home would sell for?
Market value is what a property would likely sell for. Assessed value is the value the taxing authority uses to calculate your bill, which in many jurisdictions is a set percentage of market value rather than the full amount, and may be capped in how fast it can rise annually.
What is a mill in property tax terms?
A mill equals $1 of tax for every $1,000 of taxable value, or 0.1%. A combined rate of 22 mills equals 2.2% of taxable value. Your total mill rate is usually the sum of several separate local levies.
Will my property taxes go up after I buy the house?
Often yes, if the jurisdiction reassesses at the new sale price rather than carrying forward the previous owner's assessed value. Check with the county assessor for how reassessment on sale works locally before relying on the seller's current tax bill.
How often are property taxes reassessed?
It varies by jurisdiction. Some counties reassess annually, others every few years, and many reassess automatically when a property sells or a significant permitted improvement is recorded. Check your county assessor's published reassessment cycle for the exact schedule.
Can I lower my property tax bill without moving?
Filing a formal appeal with comparable sales evidence, applying for exemptions you qualify for (homestead, senior, veteran or disability, depending on your state), and correcting factual errors in the property record are the usual paths to a lower bill.
Why did my escrow payment change even though my mortgage rate is fixed?
A fixed rate only fixes the principal-and-interest portion of the payment. Property tax and insurance premiums can both change year to year, and the lender recalculates the escrow portion of your payment after each new bill to keep the account funded.
Sources and references
- IRS Publication 530 — Tax information for homeowners — Deductibility and treatment of real estate taxes.
- Lincoln Institute of Land Policy — 50-State Property Tax Study — Effective tax rates and assessment ratios by state and city.
- IAAO — Standard on Ratio Studies — Assessment-to-market-value practice behind assessment ratios.