Property Taxes

April 20, 2023

What are Property Taxes?

Property taxes are a type of tax imposed by the government on the value of real estate property such as land, buildings and homes. Although property tax rates vary by jurisdiction, it is generally calculated based on the value of the owned property. Most property taxes are imposed by the local government where the property is located and paid by the owner of the property. The local government will use the funds generated from property taxes to fund water and sewer systems as well as provide law enforcement, education, community centers and road construction. 

Key Takeaways

  • Property taxes are a type of tax imposed by local governments in the United States on the value of real estate property.
  • This may include land, buildings and homes, while some jurisdictions also tax tangible personal property such as cars and boats.
  • These taxes are used to fund local government services and infrastructure projects.

Calculating Property Taxes

The first step in calculating property taxes is determining the assessed value of the property. This is typically set by the relevant local government’s tax assessor, who estimates the market value of the property. The assessor uses important factors such as the size, location and condition of the property to determine its value. 

Once the assessed value is established, the local government applies the required tax rate to calculate the amount of property tax owed. This tax rate, which is usually expressed as a percentage of the assessed value, can vary depending on the jurisdiction. For instance, assume that a homeowner in New York CIty has a property that has been assessed at a value of $500,000 by a New York City tax assessor. The current property tax rate in New York City is set at 0.902%. By multiplying the assessed value of $500,000 by the tax rate of 0.902%, we arrive at a property tax of $4,510. As a result, the homeowners would owe $4,510 in property taxes for that year.

Property Taxes vs Real Estate Taxes

Property taxes and real estate taxes are terms often used interchangeably. However, it is essential to keep in mind that they can have slightly different meanings. While real estate tax is a form of property tax, not all property taxes are considered real estate taxes. The main difference between the two is that real estates apply to actual property only, while property taxes can be imposed on both real property and tangible personal property. Tangible personal property refers to any physical property that is not real estate or attached to real estate. Common examples of tangible real estate include furniture, cars, boats, artwork and equipment. In some cases, tangible property can be subject to other taxes and regulations such as sales tax or use tax when the property is sold or transferred to another party.

Bottom Line

Dealing with property taxes can be complex and overwhelming, and even minor mistakes or oversights can lead to harsh legal penalties. Stay on the right side of the law by working with one of our elite tax lawyers. Contact us today to see how we can help you with all of your tax-related needs.

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