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Property Tax Basics

Property taxes represent a significant portion of your overall tax payments. Property tax revenues are used to support local vital community resources and services such as:

  • Public schools and libraries
  • Police and fire protection services
  • Roads, parks, and streets
  • Sewers and water treatment systems
  • Garbage removal services

These essential amenities depend on property taxation for their creation, maintenance, and improvement. In theory, there is a close relationship between property taxes and property values. That's because local amenities help improve your home's value.

Unlike income taxes, property taxes are due yearly regardless of whether you have income. Like sales taxes, property tax rates depend on several factors that may change over time. The taxable value of your home can be affected by factors such as:

  • The type of property you own
  • Taxes assessed in prior years
  • Local property tax rules
  • Voter-approved measures in local taxing jurisdictions
  • Sale price and fair market value of your home

Any property tax exemptions (e.g., owner-occupied or homestead exemptions) that may apply

It's a good idea to get up to speed on property tax due dates if you're a homeowner or are planning to become one.

This article provides a brief overview of property tax basics. It addresses what property taxes are and where the money you pay in taxes goes. This article also discusses property assessment methods and how supplemental assessments change your taxes. It also addresses ad valorem taxes.

What Are Property Taxes?

A property tax is a tax imposed (or levied) on real and personal property. Real property can include:

  • Real estate in the form of land and improvements
  • Residential properties, including multi-occupancy buildings
  • Commercial properties, including shopping malls and offices

In contrast, personal property is all that isn't considered real property. That includes things like:

  • Personal belongings
  • Cars
  • Equipment and inventories

Land and building taxes are one of the oldest forms of taxation in the United States. They remain a significant source of revenue for local governments.

Where Does the Money I Pay in Real Estate Taxes Go?

Municipal governments use property taxes to collect revenue. In the event of delinquent taxes, municipalities can impose a tax levy or tax lien. That means a tax collector can force the seizure of your property or the garnishment of your wages to satisfy your total tax liability. Your total tax liability is the payment you owe to the municipality for every fiscal year where installments are overdue.

Once collected, property taxes are redistributed and used to help finance the local government. They also fund public services and other community projects that individual property owners can't fund alone. Each household's property tax bill is different—the tax isn't uniform across homeowners for every current year.

Instead, the property tax rate is computed using various factors. Accordingly, the tax burden of every person may differ depending on:

  • The nature of their taxable property (e.g., old versus new constructions)
  • The special districts that the property may be located in
  • The taxation parameters set by the local governing body

Property Assessment Methods and How Tax Assessments Change Your Taxes

A tax assessor will use a specific computation method to assess your property tax rate. If you disagree with the assessor, you may appeal and request a reassessment. Three main methods exist to determine how your property tax obligation is assessed. It's important to note that an appraisal and an assessment may result in different property value determinations. The three main property assessment methods are the cost approach, the sales comparison approach, and the income approach.

Cost Approach

With the cost approach for assessing property tax rates, the value of just the land itself is added to the value of any structures (e.g., outbuildings) and amenities (e.g., pools). Then the home's and amenities' depreciation are subtracted from that amount to determine the appropriate tax rate.

Sales Comparison Approach

With the sales comparison approach for assessing property tax rates, the home's market value is compared to other comparable residential properties recently sold in the area. These are often called comparable properties or “real estate comps." They will be used to find similarities and differences with your home. The taxable rate will be adjusted pursuant to those similarities or differences.

Income Approach

With the income approach for assessing property tax rates, the capitalization process determines your home's income potential. This approach is used for income properties such as rental properties. The capitalization rate is computed by dividing your property's net operating income by the current fair market value of the home.

'Ad Valorem' Taxes

"Ad valorem" taxes are taxes based on a proportion of the value of the property being taxed. Ad valorem taxes are instituted by state laws. They require taxpayers to pay each tax year for their real or personal property.

An appraisal of the taxable subject matter's value needs to be done periodically to arrive at a correct amount of tax. When the property owner's property valuation changes, so does their appraised or assessed value. Most property taxes are of this ad valorem variety. Ad valorem property taxes are based on ownership of the property. Property owners must pay these taxes regardless of whether they use or generate income from the property.

An example of an ad valorem tax is the Title Ad Valorem Tax (TAVT) and Annual Ad Valorem Tax in the state of Georgia. The TAVT is a one-time tax imposed on titled vehicles. As of 2024, the TAVT requires a rate of 7% of the vehicle's fair market value. The annual ad valorem tax must be paid each tax year. It is required before a person can receive or renew their tags. These taxes are assessed using the vehicle's fair market value and the local tax district's rates. The income from ad valorem taxes in the state of Georgia is distributed to the state, county, local school district, and cities.

Property Tax Basics: Taxing Authorities and Collection

Generally, responsibility for the three phases of the property tax system—levy, appraisal, and collection—rests almost exclusively on the taxing authorities within local governments. Like any other branch of government, a taxing authority is a legal entity with elected or appointed officers serving a distinct geographic area.

Both state and local government agencies are authorized to levy taxes. Still, the way they conduct assessments, collection, and compliance can differ widely. In some state jurisdictions, a single state agency has primary responsibility for obtaining all appraisals, making assessments, and collecting taxes. In most states, certain agencies assess some or all railroads and utility properties.

There may be opportunities to challenge how your property is valued, such as through local assessment appeals or review boards.

Get a Free Assessment of Your Property Tax Concerns

If you're planning to buy a house but want a better understanding of your property tax obligation or tax collection, you're not alone. Perhaps you have other concerns regarding property taxes, such as tax credits, special assessments, or unpaid taxes. In these situations, it's best to seek out the contact information of a tax attorney or a real estate attorney. They can help spot tax issues before they become more significant. An experienced lawyer can also secure potential tax relief if you qualify.

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