TL;DR
Property taxes are calculated by multiplying your home's assessed value by local tax (millage) rates, and they vary dramatically by location. The national average property tax bill reached $4,172 in 2024, but a $400,000 home could cost you $8,920 per year in New Jersey versus just $2,040 in South Carolina. As a homebuyer, understanding how assessments work, when reassessment triggers at purchase, and how taxes flow into your monthly mortgage escrow payment is essential to calculating your true cost of homeownership.
Property Tax Explained: What Are Property Taxes and Why Do You Pay Them?
Property taxes are recurring annual taxes levied by local governments on the value of real estate you own. They represent the single largest source of revenue for local governments in the United States, funding the schools your children attend, the roads you drive on, the fire department that protects your home, and the police officers who patrol your neighborhood. According to the Tax Foundation, property taxes accounted for 70.2% of all local government tax revenue and 27.4% of total state and local tax collections in fiscal year 2022.
Unlike income taxes or sales taxes that fluctuate with earnings or spending, property taxes are based on the value of what you own. This makes them remarkably stable as a revenue source for local governments. Schools keep operating, garbage gets collected, and streets get plowed regardless of whether the broader economy is booming or contracting. For homeowners, this stability comes with a tradeoff: you owe property taxes every year whether your income rises, falls, or disappears entirely.
Every state in the country imposes property taxes. There is no state where you can own real estate without this obligation. However, the amount you pay varies enormously depending on where you live. The Institute on Taxation and Economic Policy (ITEP) notes that property taxes on land and buildings are the oldest major revenue source for state and local governments, dating back to the founding of the nation. While their share of total government revenue has declined over the past century as states introduced income and sales taxes, they remain irreplaceable at the local level.
Where Your Property Tax Dollars Go
When you pay your property tax bill, the money typically gets divided among several overlapping taxing jurisdictions. Your single bill may fund the county government, your municipal government, the local school district, a community college district, a library district, a park district, and various special assessment districts. The school district portion is usually the largest, often consuming 40% to 60% of the total property tax bill. This is why areas with highly rated schools tend to have higher property taxes, and why property tax debates often center on education funding.
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Get Matched With a Top AgentHow Property Taxes Are Calculated: Assessment to Bill
Understanding how property taxes work requires following a multi-step calculation. The process may seem complex, but once you understand each step, you can estimate your own tax bill with reasonable accuracy and identify opportunities to challenge errors.
Determine Market Value
Your local tax assessor estimates what your property would sell for on the open market. This is called the market value or fair market value. Assessors use comparable sales data, property characteristics, replacement cost analysis, and sometimes the income potential of the property (for commercial real estate) to arrive at this figure.
Apply the Assessment Ratio
The assessed value is calculated by multiplying the market value by your state's assessment ratio. Some states assess at 100% of market value, while others use a fraction. For example, New Mexico assesses residential property at 33.3% of market value, and Arkansas uses a 20% assessment ratio. A $300,000 home in Arkansas would have an assessed value of only $60,000.
Subtract Exemptions
Many jurisdictions offer exemptions that reduce the taxable portion of your assessed value. Homestead exemptions for primary residences are the most common. Veterans, seniors, disabled homeowners, and agricultural properties may also qualify for additional exemptions. These exemptions vary significantly by state and locality.
Multiply by the Tax Rate (Millage Rate)
The resulting taxable value is multiplied by the millage rate, which is the sum of all tax rates from every applicable jurisdiction. A mill equals one-tenth of one percent, or $1 per $1,000 of taxable value. If your combined millage rate is 25 mills (2.5%), and your taxable value is $250,000, your property tax is $6,250.
Apply Credits (If Applicable)
Some areas offer credits such as property tax circuit breakers that cap taxes as a percentage of income for low-income households, or homestead credits that provide a flat dollar reduction. These reduce the final amount you owe.
Property Tax Calculation Example
Scenario: You purchase a home with a market value of $350,000 in a state with a 100% assessment ratio, a $25,000 homestead exemption, and a combined millage rate of 22 mills.
Market Value: $350,000
Assessment Ratio (100%): $350,000
Minus Homestead Exemption: $350,000 - $25,000 = $325,000 taxable value
Tax Rate (22 mills = 2.2%): $325,000 x 0.022 = $7,150 annual property tax
Monthly Escrow Impact: $7,150 / 12 = $595.83 added to your mortgage payment
Why Property Taxes Vary Between Neighboring Properties
One of the most confusing aspects of property taxes for homebuyers is discovering that two nearly identical homes on the same street can have vastly different tax bills. Several factors create these disparities.
Assessment Timing and Frequency
States reassess properties on different schedules. Some conduct annual reassessments, while others only reassess every three to five years, or even less frequently. A few states, most notably California under Proposition 13, primarily reassess property only when it changes hands or undergoes major renovation. If your neighbor bought their home 15 years ago at $200,000 and it has been reassessed conservatively since then, they might be paying taxes on an assessed value of $280,000. If you buy the same model next door today for $450,000, your assessment will reflect the current purchase price. The result: you could pay 60% more in property taxes than your neighbor for a functionally identical home.
Assessment Caps and Freezes
Many states limit how much an assessed value can increase annually. California caps annual increases at 2% (unless the property sells). Florida limits increases on homesteaded properties to 3% or the Consumer Price Index, whichever is lower. These caps protect long-term homeowners from sudden tax spikes but create growing inequities over time. Two homes with identical market values can have dramatically different assessed values based solely on when each was last purchased.
Exemptions and Classification Differences
Your neighbor may qualify for exemptions you do not. Senior citizens, veterans, disabled homeowners, and agricultural property owners often receive significant tax reductions. Some states classify property into residential, commercial, and industrial categories, applying different assessment ratios or tax rates to each class. Even within the residential category, a home used as a primary residence versus a rental property may be taxed differently.
Key Insight: Research from the Institute on Taxation and Economic Policy shows that assessment inequities disproportionately affect certain communities. Studies indicate that homes in lower-income neighborhoods and homes owned by Black families are more likely to be over-assessed relative to actual market value, while expensive properties tend to be under-assessed.
Property Taxes When Buying a House: What to Expect
For prospective homebuyers, property taxes represent one of the most commonly underestimated ownership costs. The previous owner's tax bill listed on an MLS sheet may bear little resemblance to what you will actually pay once the sale closes. Understanding why requires knowing how purchase-triggered reassessment works.
Purchase Price Reassessment
In most jurisdictions, a property sale triggers a reassessment. The assessor will update the property's value to reflect the actual purchase price, which often exceeds the previous assessed value, especially if the seller owned the home for many years. If a home was assessed at $275,000 under the previous owner but you purchase it for $425,000, expect your assessed value to reset to approximately $425,000. At a 1.5% effective tax rate, that means your annual tax bill jumps from roughly $4,125 to $6,375, an increase of $2,250 per year, or $187.50 per month added to your housing costs.
Prorated Taxes at Closing
At closing, property taxes are prorated between buyer and seller. If the seller has paid taxes through June 30 and closing occurs on April 15, the seller receives a credit for the taxes they prepaid covering April 15 through June 30. These prorations are based on the current tax bill, not your projected future bill. This means that even though your actual taxes may increase significantly after reassessment, the closing proration will not reflect that higher amount. Budget accordingly for the first year.
A knowledgeable buyer's agent can help you research actual tax records, identify pending reassessments, and calculate your realistic property tax obligation before you make an offer. This kind of due diligence prevents budget surprises that can strain your finances after closing. Understanding your full closing costs means going beyond the sticker price of the home itself.
How Property Taxes Affect Your Monthly Mortgage Payment
Most mortgage lenders require you to escrow your property taxes, meaning the lender collects one-twelfth of your estimated annual tax bill with each monthly mortgage payment. The lender holds these funds in an escrow account and pays the property tax bill on your behalf when it comes due. Your "total monthly payment" quoted by lenders, often called PITI (principal, interest, taxes, and insurance), includes this escrow amount.
This is critically important for budgeting. A $350,000 home at 6.5% interest on a 30-year mortgage has a principal and interest payment of approximately $2,212. But add $7,000 in annual property taxes ($583/month) and $1,800 in homeowner's insurance ($150/month), and your actual monthly obligation rises to $2,945. That property tax component represents nearly 20% of your total monthly payment. When comparing homes across different tax jurisdictions, the difference in monthly escrow for property taxes alone can exceed $300 to $500 per month.
Understanding hidden homebuying costs like property taxes is essential before you commit to a purchase price. If you are working through the numbers on your first purchase, our definitive guide to buying your first home walks through every cost you should anticipate.
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Use this calculator to estimate your annual property tax bill and understand how property taxes affect your monthly mortgage payment. Enter your home's purchase price and select your state to see estimated figures based on average effective tax rates.
Estimate Your Property Tax & Monthly Escrow Impact
State-by-State Property Tax Comparison
Property tax rates vary enormously across the country. According to ATTOM Data's 2024 analysis, the average effective property tax rate nationwide was 0.86%. But state-level averages ranged from just 0.27% in Hawaii to 2.23% in New Jersey, an eightfold difference. On a $400,000 home, that translates to a spread of $1,080 per year in Hawaii versus $8,920 per year in New Jersey.
Use the tool below to look up any state's effective property tax rate, see how it ranks nationally, and compare two states side by side at your expected purchase price.
State Property Tax Lookup & Comparison Tool
State 1
State 2
Annual Difference
--10-Year Difference
--Sources: Tax Foundation, 2025; ATTOM Data Solutions, 2024 Property Tax Analysis; NAHB analysis of 2024 American Community Survey. Rates shown are effective rates for single-family homes. Actual rates vary by county and municipality.
How to Appeal Your Property Tax Assessment
If you believe your property has been over-assessed, you have the right to appeal. According to the National Taxpayers Union Foundation, fewer than 5% of homeowners challenge their property tax assessments, yet a significant percentage of those who do appeal succeed in getting their assessments reduced. The appeal process varies by jurisdiction but generally follows a predictable pattern.
Steps to a Successful Property Tax Appeal
Review your assessment notice carefully. Verify that the property description is accurate, including lot size, square footage, number of bedrooms and bathrooms, and any recorded improvements. Errors in these basic facts are more common than you might expect, and correcting them can lower your assessed value.
Gather comparable sales data. Research recent sales of similar homes in your area that sold for less than your assessed value. Your county assessor's office or online property databases can help you identify relevant comparables. Focus on homes within a half-mile radius that are similar in size, age, condition, and features. Three to five strong comparables are usually sufficient.
File your appeal within the deadline. Most jurisdictions set strict deadlines for filing property tax appeals, typically 30 to 90 days after receiving your assessment notice. Missing this window generally means waiting until the next assessment cycle. Contact your local assessor's office or board of review to confirm deadlines and filing procedures.
Present your case. Most appeals begin with an informal review with the assessor's office. If that does not resolve the issue, you can escalate to a formal hearing before a board of review or appeals board. Bring your comparable sales data, photographs of any property deficiencies, and a written summary of why you believe the assessment is too high. Some homeowners hire property tax attorneys or consultants who work on contingency, taking a percentage of any tax savings they achieve.
The Property Tax Deduction and the SALT Cap
Homeowners who itemize their federal tax returns can deduct property taxes paid, but this deduction is limited. Since 2018, the Tax Cuts and Jobs Act capped the total deduction for state and local taxes (SALT), which includes property taxes, at $10,000 per year ($5,000 for married filing separately). This cap was a significant blow for homeowners in high-tax states who had previously been deducting $15,000, $20,000, or more.
In 2025, the One Big Beautiful Bill Act raised the SALT deduction cap to $40,000 ($20,000 for married filing separately) for households with modified adjusted gross income (MAGI) of $500,000 or less. The cap phases down by 30% of income above $500,000, reverting to $10,000 at $600,000 MAGI. This higher limit increases by 1% annually through 2029, then reverts to $10,000 in 2030. According to the Bipartisan Policy Center, the expanded cap primarily benefits higher-earning homeowners in states like New York, New Jersey, California, Massachusetts, and Connecticut.
What This Means for Buyers: If you are purchasing in a high-tax state and your combined property taxes and state income taxes exceed $10,000, the higher SALT cap for 2025 through 2029 could make itemizing more beneficial than taking the standard deduction. For 2025, the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly. If your total itemized deductions (including SALT, mortgage interest, and charitable contributions) exceed these amounts, itemizing saves you more. Consult a tax professional to determine the best approach for your situation.
Strategies for Reducing Your Property Tax Burden
While you cannot eliminate property taxes, you can take steps to ensure you pay no more than your fair share.
Homestead Exemptions
Most states offer a homestead exemption that reduces the taxable value of your primary residence. Some, like Texas, provide exemptions exceeding $100,000 for school district taxes. You typically must apply for this exemption; it is not automatic. File for your homestead exemption as soon as you close on your new home to avoid paying taxes on the full assessed value.
Senior, Veteran, and Disability Exemptions
If you are over 65, a military veteran, or have a qualifying disability, you may be eligible for additional exemptions or freezes that lock your assessed value. Some jurisdictions offer property tax deferrals for seniors, allowing them to delay payment until the home is sold. Check with your local assessor's office to learn what programs are available.
Monitor Assessment Accuracy
Review your property's assessed value each year. If your home's market value has declined due to neighborhood changes, structural issues, or broader market conditions, but your assessment has not been adjusted, you may be overpaying. Appeal any assessment that does not accurately reflect your home's current fair market value.
Understand Your Local Budget Process
Property tax rates are set annually through local budget processes. School board meetings, county budget hearings, and municipal council sessions are where millage rates get approved. Attending these meetings and understanding proposed spending gives you a voice in how your tax dollars are used and whether rate increases are justified.
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Get Matched With a Top Agent TodayFrequently Asked Questions About Property Taxes
How are property taxes calculated when buying a house?
Property taxes are calculated by multiplying your home's taxable assessed value by the local millage (tax) rate. When you buy a house, the property is typically reassessed at or near the purchase price. This means your property tax bill may be significantly higher than what the previous owner paid, especially if they owned the home for many years under a lower assessment. Your lender will estimate the annual tax and divide it by 12 to determine your monthly escrow payment, which is added to your mortgage payment.
Why is my property tax bill different from my neighbor's?
Several factors can cause property tax differences between neighboring homes. Assessed values may differ based on when each property was last sold or reassessed. Homestead exemptions, senior exemptions, veteran exemptions, and disability exemptions reduce taxes for qualifying homeowners. Assessment caps in states like California and Florida also create disparities, since long-time owners may have assessments far below current market value while recent buyers are assessed at their purchase price.
Can property taxes increase after I buy a home?
Yes. Property taxes can increase in two ways. First, your local government can raise the millage rate through the annual budget process. Second, your assessed value can increase through periodic reassessments that reflect rising market values. Some states cap annual assessment increases (for example, California limits increases to 2% per year under Proposition 13), while others reassess at full market value annually. Major renovations or additions that increase your home's value can also trigger a higher assessment.
What is a millage rate and how does it affect my property tax?
A millage rate, also called a mill rate, is the tax rate used to calculate property taxes. One mill equals one-tenth of one percent, or $1 per $1,000 of taxable value. Your total millage rate is typically the sum of rates from multiple taxing jurisdictions, including the county, municipality, school district, and any special districts. For example, if your total millage rate is 30 mills (3.0%) and your taxable property value is $300,000, your annual property tax bill would be $9,000.
Are property taxes tax-deductible on my federal return?
Property taxes are deductible if you itemize deductions on your federal income tax return, subject to the SALT (state and local tax) cap. For tax year 2025, the SALT deduction cap increased from $10,000 to $40,000 for filers with modified adjusted gross income (MAGI) of $500,000 or less. The cap phases down for higher incomes and reverts to $10,000 at $600,000 MAGI. The higher cap is scheduled to increase by 1% annually through 2029, then return to $10,000 in 2030. You can only benefit from this deduction if your total itemized deductions exceed the standard deduction.
How do I appeal my property tax assessment?
Start by reviewing your assessment notice for errors in property details such as square footage, lot size, or number of rooms. Gather comparable sales data showing similar homes that sold for less than your assessed value. File a formal appeal with your local assessor's office or board of review before the stated deadline, which is typically 30 to 90 days after receiving your notice. You can also hire a property tax attorney or consultant, many of whom work on contingency. Success rates for appeals vary but are generally favorable when you present solid comparable sales evidence.
What happens to property taxes if my home value decreases?
If your home's market value declines, your assessed value should eventually decrease as well, which would lower your property tax bill. However, the timing depends on your jurisdiction's reassessment schedule. In areas that reassess infrequently, it may take several years for a decline to be reflected. You can accelerate this process by filing an appeal with evidence of decreased value, such as comparable sales, an independent appraisal, or documentation of conditions affecting your property's worth.
Do any states have no property tax?
No. As of 2025, all 50 U.S. states impose property taxes on real estate. However, rates vary enormously. Hawaii has the lowest effective rate at approximately 0.27%, while New Jersey has the highest at 2.23%. Some states compensate for low property taxes with higher income or sales taxes, while others, like Texas and New Hampshire, rely heavily on property taxes in lieu of a state income tax. Several states offer programs that can effectively eliminate or defer property taxes for qualifying seniors, veterans, or disabled homeowners.
