The deadline for filing your 2020 taxes is May 17, 2021. Here’s what else to know.
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.
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.