The Difference Between Property Assessment and Property Taxes

As a property owner, you will need to pay property taxes every year. These taxes are the main source of revenue for your local government, especially the public school system.

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Of course, they will also represent one of your biggest expenses as a homeowner. Even when the mortgage is paid off, you will need to pay property taxes year after year. Property taxes are based on your property's assessed value, your local property tax rate, and any exemptions that may apply to you. Because your home's assessed value and even your local property tax rate can change from one year to the next, your property taxes are likely to increase slightly every few years.

What Is a Property Assessment?

Your home's assessed value is different than your home's market value. The assessed value is usually lower than the market price and it's determined through a property assessment. Most counties have an assessor who assigns values on homes to levy property taxes. Like a real estate agent determining market value, the assessor will consider the sales prices of similar properties, the value of improvements you have made, income you may receive from renting out the property or conducting business on the property, and the replacement cost of the home.

Once the assessor determines a value, it will be multiplied by an assessment rate which is a rate set by your tax jurisdiction. This is usually 80-90%. If your home has a market value of $250,000 with an assessment rate of 85%, your assessed value is $212,500.

What Is the Difference Between Property Assessment and Property Taxes?

Property assessments and property taxes are always linked. Local governments use property assessments to determine a home's assessed value. This assessed value is then used to calculate the amount of property taxes that are due for the year by the homeowners. The higher the assessed value of your home, the higher your annual property tax bill. You can always get your home's assessed value from your local tax assessor, who can also provide your local property tax rate.

Both assessed values and property taxes can change over time but both tend to be rather stable. Assessed home values don't rise and fall significantly like market value. Some states even ban the assessed value of homes from rising more than a certain amount, such as 3%, per year, even if the market value rises dramatically. A home's assessed value is based on factors outside of the city or county's control but the property tax rate is controlled by the local government. A government with a budget gap may increase property taxes to quickly raise the money it needs.

In most states, all properties go through the property assessment purpose to get an assessed value. Not all of this amount may be taxable, however. Some people can qualify for property tax exemptions, including veterans, disabled homeowners, seniors, and low-income homeowners.

How Often Do You Have to Deal with Property Assessment and Property Taxes?

Property taxes are typically billed quarterly, bi-annually, or annually. Homeowners who have a mortgage often pay through property taxes along with their mortgage payment to the bank, which puts the payments in an escrow account and ensures the property taxes are paid. In most states, your home's value is assessed every 5 to 7 years. You will receive a notice when there is a new property assessment on your home and you have the right to contest it if you think it's too high. Otherwise, your assessed value is unlikely to change unless you make home improvements that increase your home's value, such as a home addition or finishing a basement.

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