Property tax

What is property tax?

Property tax is any tax on real estate or certain other forms of property. The proceeds from property taxes represent one of the principal sources of income for local and state governments in the U.S.

Deeper definition

Local governments impose property taxes on buildings, land, and certain categories of personal property bought or owned within their jurisdictions. Land, with or without buildings, is usually taxed on an annual basis. The value of a given property fluctuates over time, depending on the value of surrounding properties or improvements to the property. Property owners can appeal a property appraisal if they feel it’s too high.

Municipalities adjust property tax rates on an annual basis depending on their changing fiscal needs and to compensate for inflation. There are several methods for determining the value of real estate and the applicable tax rate:

  • Market value: The value of a property as set on the open market.
  • Appraised value: The value placed on a property by a private appraiser. This is used for determining the value of a property when buying or selling property.
  • Assessed value: The value placed on a property by a municipality for the purpose of determining the property tax due.
  • Assessment ratio: The ratio of a property’s assessed value to its market value.

Some states impose a property tax on cars, RVs, and boats. When you initially license or register your vehicle, you pay a portion of the fee based on the value of the vehicle. This represents the property tax on these items, and usually you only pay once as long as you own the vehicle.

Local governments handle commercial and industrial property taxes a little differently than residential taxes. Business owners need to fill out an income and expenses form. This allows the government office to calculate the required tax according to how much income the business took in compared to how much the business spent on expenses.

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Property tax example

The hamlet of Rivendell charges a property tax rate of 4 percent for residential properties, and the assessed value of Elrond’s home is $400,000. Elrond owes Rivendell property taxes of $16,000 for the current tax year.

Other Taxes Terms

Individual Taxpayer Identification Number (ITIN)

The Individual Taxpayer Identification Number (ITIN) is a tax term you should know.

Standard mileage rate

Standard mileage rate is an IRS term every taxpayer should know. Bankrate explains it.

Adjustments to income

Adjustments to income can reduce the amount of tax owe. Bankrate explains.

Adoption taxpayer identification number (ATIN)

What is an adoption taxpayer identification number? An adoption taxpayer identification number (ATIN) is temporarily given to children who are in the process of being adopted when the adopting family doesn’t have or doesn’t know the child’s Social Security number. When the adopting parents file their tax returns and list an adopted child as a […]

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