Property Tax Basics

• Property taxes are determined by assessors who estimate the value of property. The given tax rate is for a certain area is multiplied by the assessed value of the property to arrive at the total property tax owed. The tax rate itself can vary greatly depending on the state, county, city and even neighborhood that a person lives in. Certain local amenities such as public schools, parks, and libraries may weigh in on property taxes in the surrounding area, forcing real estate owners to pay tax to support such public goods. Likewise, a certain municipality or county may assess higher taxes for certain amenities--or simply due to a different revenue structure. So the location of property is very important in determining the ultimate amount of tax owed.
  
  

Sales History

• Property tax assessors use a few different methods to estimate the value of a property. One of the most common methods is using sales history and sales data of the surrounding area to estimate the value of a home. If a property has been recently sold, the sale price is a strong indicator of the value of the home, which will weigh in heavily on the assessed value. If a home has not been sold for a long time, the sale of similar homes in the area can be used as a comparison to arrive at a value estimate. Assessors may use data such as square footage, lot size, number of beds and baths, and other information to arrive at their estimate. Improvements made to homes are also factored into assessments, so a new home improvement will likely cause a substantial increase in property tax.
  
  

Other Methods

• Another way property taxes can be figured is a construction cost approach. This approach estimates the cost of building a home or structure of similar utility to the one that currently exists on the property. The cost approach may be useful for assessing properties with unique features where sales comparisons will not accurately gauge a home's value. For commercial properties, assessors may use a revenue-based approach to calculate property value. A revenue-based approach estimates the amount of income that a property is likely to be able to generate based on its location, size, and vacancy levels.