Property tax is a tax that an owner of the property—which can include a home, vehicle, or vacant land—pays to the local government based on the property's assessed value. here the explanation about what is the definition of property tax.
Main Points
- Property owners pay property tax to government entities based on the property’s valuation.
- In addition to real estate, property tax may apply to boats, aircraft, and vehicles.
- Property tax often goes toward funding local government services.
- Homeowners need to consider property tax rates when thinking about the total cost of ownership.
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| What Is the Definition of Property Tax |
What Does Property Tax Do?
Homes, vehicles, land are typically subject to property tax. Commercial and industrial real estate, vacation homes, farms, timeshares, boating docks, and other property can also be subject to property taxes. Even if you don’t own real estate or other property, it can be useful to understand property taxes, which can affect everything from rent prices to your local schools’ funding.
Typically, a county or city assessor sets property values, and the county treasurer collects property tax payments. Depending on the location of a property, the relevant jurisdiction will typically send a property tax bill to the property owner based on the assessed value, payable in quarterly, annual or biannual payments.
Property taxes are an example of an ad valorem tax and are calculated based on a property’s assessed value. The assessed value may equal what the property would sell for on the open market, depending on local tax rules, or a percentage of that market value. Each area may have their own specific rules. For example, in California, property taxes are limited to the home’s initial purchase price, plus inflation.
Note: Not paying property tax bills on time could lead to significant fees, interest charges, penalties, and potentially a tax lien certificate against your home or property.
Many state, county and city property tax programs can reduce, defer or assist with the amount due for qualifying individuals, such as senior citizens, veterans, people with disabilities, widows, or people with limited income. To claim an exemption, you’ll need to prove that you're eligible.
Examples of Property Taxes
Property owners pay property tax to local governments based on how the city, county, or state determines the value of the property, whether that’s land, the overall value of a home, a commercial building, or even a car. These taxes often fund schools, and other local government needs, such as fire and police protection, libraries, city services, transportation and recreation.
Note: Property taxes can apply to all types of property, including boats, aircraft, and vehicles.
But the term property tax tends to be used for real estate. In particular, many people focus on property tax regarding home-related taxes.
The property tax rate for owner-occupied property ranged from 0.31% in Hawaii to 2.21% in New Jersey per year in 2020, according to The Tax Foundation, a tax policy nonprofit.2 As an example, if a home was valued at $500,000, and was taxed at a rate of 1%, and the owner received no exemptions or deductions, the homeowner would pay $5,000 per year in property taxes.
Property taxes are typically managed at the county level, but there can also be specific property taxes for other jurisdictions like individual towns, cities, or school districts. For example, many of the towns in Oswego County in New York also levy their own property taxes in addition to the county property taxes.
What Are the Implications of Property Taxes for Individuals?
Property taxes are important for individuals to comprehend whether or not they own a home. If you own real estate or plan to buy, then you need to budget for your property tax bills.
You may be able to afford mortgage payments if they are roughly equal to rent. But if you’re in an area where property tax bills can be adjusted at market value, then you may need to pay progressively higher property tax bills.
If you don’t own property, it’s still useful to understand local property taxes. Your rent probably doesn’t have a line item for property taxes, but your landlord will most likely want your rent to cover the cost of property taxes, improvements or maintenance, any mortgage, and profit, among other things. That means local property taxes will generally affect what your landlord charges.
It can also be useful to know how much property tax is collected in your community, and what it's used for. If you’re active in politics or have children in local schools, you may want to know how the government spends property tax money on education or other services.
Frequently Asked Questions
How is property tax calculated?
Although there's typically a specific calculation for your state or locality, there are some basic principles that apply across the board. To calculate your property tax, you'll need to find out your property's assessed value. You'll then need to multiply the assessed value by the tax rate. Some places may place a cap on how much your taxes can go up each year. Make sure you claim any deductions you're eligible for when paying your property tax.
When is property tax due?
The day your property tax is due depends on the county and state your property is in. For example, in some counties in Illinois, you'll need to pay your first installment of property taxes by March 1st, while others may allow you to pay up until June 1st. The second installment of property taxes in Illinois is due August 1st. In Los Angeles, your first payment is due on November 1st, and the second payment is due on February 1st. In New York City, your payments may be due twice a year, on January 1st and July 1st, or four times a year, depending on the assessed value of your property.