Property Tax: How It’s Calculated, What Affects It, and How to Appeal
Last updated 05/18/2026 by
Ante Mazalin
Edited by
Andrew Latham
Summary:
A property tax is an annual tax levied by local governments on the assessed value of real estate, used primarily to fund public schools, emergency services, and local infrastructure.
How much you pay depends on two factors that vary significantly by location.
- Assessed value: The value assigned to your property by the local tax assessor, which may be lower than the market value depending on the jurisdiction’s assessment ratio.
- Tax rate (mill rate): The rate set by the local government, expressed in mills — one mill equals $1 per $1,000 of assessed value.
- Escrow collection: Most mortgage lenders collect property taxes monthly as part of the mortgage payment and pay the bill directly when it comes due.
- Exemptions: Homestead, senior citizen, veteran, and disability exemptions can reduce the taxable value for eligible property owners.
Property taxes are one of the largest ongoing costs of homeownership, and they can change even after you buy. Understanding how they are calculated and what options exist to reduce them can meaningfully affect your long-term housing costs.
How property tax is calculated
Your annual property tax bill is calculated by multiplying the assessed value of your property by the local tax rate. Most jurisdictions assess property at a percentage of its market value, called the assessment ratio, rather than at full market value.
As a form of ad valorem taxation, property tax scales with assessed value, not with income or transaction price.
For example, a home with a market value of $400,000 in a jurisdiction with an 80% assessment ratio has an assessed value of $320,000. At a tax rate of 1.5%, the annual bill would be $4,800.
Property type also affects the calculation. Property taxes on a condo are assessed differently from single-family homes because shared common areas factor into the unit’s valuation.
According to ATTOM Data Solutions, the average effective property tax rate in the United States was 0.87% of a home’s value in 2023, though rates ranged from under 0.30% in Hawaii and Alabama to over 2% in New Jersey and Illinois.
Property tax rates by state
Rates vary dramatically by state, county, and municipality. The table below shows effective average rates for selected states based on ATTOM’s 2023 data.
| State | Avg. Effective Rate | Relative Burden |
|---|---|---|
| New Jersey | 2.23% | Highest in the U.S. |
| Illinois | 2.08% | Among highest |
| Texas | 1.60% | Above average |
| California | 0.75% | Below average |
| Hawaii | 0.29% | Lowest in the U.S. |
Pro Tip
You have the right to appeal your property’s assessed value if you believe it is inaccurate. Common grounds for appeal include a recent sale price lower than the assessed value, errors in the property record (wrong square footage, bedroom count, or lot size), or comparable homes in your neighborhood assessed at lower values. Most counties have a formal appeal process with a filing deadline, typically 30 to 90 days after the assessment notice is mailed.
How property taxes are collected
Property taxes are typically billed once or twice per year by the county or municipality. However, most homeowners with a mortgage pay them monthly through an escrow account managed by their lender.
Each month, the lender collects one-twelfth of the estimated annual tax bill along with the mortgage payment, holds it in escrow, and pays the tax authority directly when the bill comes due. This eliminates the risk of a large lump-sum bill and ensures the lender’s collateral is protected from tax liens.
Homeowners who own property free and clear, or whose lenders do not require escrow, are responsible for paying the tax bill directly, typically in one or two installments per year. Whether property taxes are included in the mortgage payment is determined at loan origination and depends on lender requirements, down payment size, and loan type.
Homeowners with a home equity investment (HEI) agreement remain fully responsible for the property tax bill. The investor holds a stake in future appreciation but does not share carrying costs.
Property tax exemptions and deductions
Several programs can reduce the property tax burden for eligible homeowners.
- Homestead exemption: Reduces the assessed value for a primary residence, available in most states. Florida, for example, exempts up to $50,000 of assessed value for qualifying homeowners.
- Senior citizen exemption: Many states offer additional reductions for homeowners over a certain age, often combined with income limits.
- Veteran exemption: Disabled veterans and surviving spouses may qualify for partial or full property tax exemptions depending on the state.
- Agricultural exemption: Land used for farming is often assessed at its agricultural use value rather than its higher market value.
At the federal level, the Tax Cuts and Jobs Act of 2017 capped the deduction for state and local taxes (SALT), including property taxes, at $10,000 per year ($5,000 for married taxpayers filing separately). This limit significantly reduced the federal tax benefit of paying high property taxes for itemizing homeowners.
Homeowners facing property tax delinquency may have options through state tax relief programs — the SuperMoney tax relief industry study shows that local tax debt resolution resources vary widely by state.
Related reading on homeownership costs
- Escrow — explains how mortgage lenders collect and hold property tax and insurance payments monthly to pay on the homeowner’s behalf when bills come due.
- Home equity — covers how your property’s assessed and market value affects the equity you build over time, which property tax assessments directly influence.
- Home inspection — describes the pre-purchase inspection process and how a home’s condition affects both its market value and its assessed value for tax purposes.
Frequently asked questions
How is property tax calculated?
Property tax is calculated by multiplying a property’s assessed value by the local tax rate. The assessed value is typically a percentage of the market value set by a local tax assessor. For example, a $300,000 home assessed at 90% of market value with a 1.2% tax rate would generate an annual bill of $3,240.
Can property taxes increase after you buy a home?
Yes. Assessed values are typically reassessed on a regular schedule (annually in some jurisdictions, every few years in others), and tax rates can change when local governments adjust their budgets. Some states, such as California, cap annual assessment increases at a fixed percentage under laws like Proposition 13, which limits increases to 2% per year unless the property is sold or substantially improved.
What happens if you do not pay property taxes?
Unpaid property taxes result in penalties and interest from the day the payment is due. If taxes remain unpaid long enough, the local government can place a tax lien on the property and eventually initiate a tax sale or foreclosure to recover the debt, regardless of whether the homeowner has a mortgage.
Are property taxes deductible on federal income taxes?
Property taxes paid on a primary or secondary residence are deductible as part of the state and local tax (SALT) deduction on federal returns for taxpayers who itemize. However, the Tax Cuts and Jobs Act of 2017 capped the total SALT deduction at $10,000 per year, limiting the benefit for homeowners in high-tax states.
How do I appeal my property tax assessment?
Start by reviewing your assessment notice for errors in the property description such as incorrect square footage, lot size, or bedroom count. Then research comparable sales of similar homes in your neighborhood to see if your assessed value is out of line. File an appeal with your local assessment board before the deadline on your notice — most counties provide a formal appeal form and a hearing process.
Key takeaways
- Property tax is calculated by multiplying a property’s assessed value by the local tax rate, which varies significantly by state and county.
- Most mortgage lenders collect property taxes monthly through an escrow account and pay the bill directly when due.
- The average effective U.S. property tax rate was 0.87% in 2023, according to ATTOM, ranging from under 0.30% in Hawaii to over 2% in New Jersey.
- Homestead, senior citizen, veteran, and agricultural exemptions can reduce the taxable value for qualifying property owners.
- Homeowners can appeal an assessed value they believe is inaccurate, typically within 30 to 90 days of receiving the assessment notice.
If you are buying a home and want to understand the full cost of ownership including taxes, compare mortgage options at SuperMoney’s mortgage reviews.
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