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Property Tax Calculator

There are a lot of expenses associated with purchasing a home. A homebuyer will need to set aside enough money for the down payment and various closing costs. But as a homeowner, there are expenses above and beyond the mortgage you’ll be responsible for.

One of the most commonly overlooked expenses are the property taxes and depending on the area you purchase your home in, the property taxes can be a considerable expense. Understanding property taxes, how to calculate them and what they pay for is very important.

Paying Property Taxes

Property tax is not only an expense associated with owning a home, in some states you may also have to pay property taxes on your cars. Property tax is paid to the city/town you live in, and the money is used for local projects and expenses. These projects or expenses include; paying for town employees (teachers, police officers, the fire department, waste removal, the city dump, etc.), parks, recreation centers, and even maintaining public roads and infrastructure.

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Calculate Your Property Taxes

Most homes listed online will have the property tax associated with the listing. If you’re working with a licensed real estate agent, they’ll also be able to tell you exactly what your property tax obligation would be if you purchased the home. With that said, it’s important to know exactly what goes into calculating your property taxes.

Understand Your Assessed Value

Understanding the value of your home/property is the first step to calculating your property tax obligation, as property tax is derived from the overall value of the property. The assessed value of your home can change every year, and generally speaking most towns will do a ‘rebalance’ every 3-5 years.

Pay the Mill Levy

Each town or county has its own tax rate, also known as the mill levy. Some towns have a higher tax rate, where other areas are well known for their low tax rates. You can find the tax rate online, or by contacting the local tax office in the town you want to purchase a home in, or by working with a local real estate agent.

Finding Your Tax Percentage

Once you know your home's assessed value, and the mill rate, you can do some simple math to get an understanding of what the property tax obligation will be. If you contact the town and ask them what the mill rate is, they may give you a whole number. For example, the town may say your mill levy is 90.

Convert 90 into a percentage (90/1000 = .090) and multiply that by your home's assessed value. If your assessed value is $30,000, your tax responsibility is $30,000 x .090 = $2,700 a year.

Taxes Vary by Town

One of the most frustrating things about property taxes is how they can vary by town. One town may have a mill rate of 35 whereas the town next door may have a mill rate of 15! The tax one pays on their property will impact how much of a mortgage a lender will approve them for.

Additionally, depending on the mill rate per town, the property tax expense can actually make a less expensive home cost more money per month when you factor in the property tax expense. Here’s an example:

  Option 1 Option 2
Home Price $300,000 $250,000
Down Payment 20% 20%
Interest Rate 3% 3%
Annual Property Tax $2,000 $5,000
Home Insurance $1,260 $1,260
Monthly Payment $1,284 $1,365

Paying the Property Tax

Some mortgage companies roll the property tax into your monthly payment. This is known as having an escrow account. You’ll pay the mortgage company each month, and they’ll pay property taxes to the town accordingly.

Following the above example, if your property tax is $2,700/year, each month you’ll pay $225 to the mortgage company. They’ll keep that money safe and will pay the town either bi-yearly or yearly, depending on the town's requirements.

If you do not have an escrow account with your mortgage company, the homeowner will be responsible for paying the town at the proper interval. Some towns require bi-yearly payments, whereas other towns require yearly payments. It’s best to account for this expense each month so you’re not faced with an unexpected or unbudgeted expense.

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Property Tax Exemptions

The government does give some tax breaks to various homeowners. The most common tax breaks are given to:

Disabled Veterans

Many states offer property tax exemptions for disabled veterans. The amount discounted, and income threshold, varies by state. Some states also offer discounts on property tax for non-disabled veterans, contingent on a minimum of 90 days of service and honorable discharge.

Farmsteads

Similar to the above exemptions or tax breaks, farmland can also qualify for a tax break! Many states have a qualification requirement for what constitutes as farmland, and what discount or exemption the property is eligible for.

To better understand what discounts or exemptions your property may qualify for, contact your local tax assessor.

Capital Gains Tax on Property

Capital gains tax is not the same as property tax. Capital gains is the tax you pay when you sell an asset (most commonly real estate or stocks). You’ll pay tax on the profit you’ve made between the acquisition price and the sale price.

The 2020 tax law excludes capital gain tax for single filers if the capital gain was less than $250,000. For married couples, capital gains tax is excluded for the first $500,000 in profit. If the property is an investment property, and not your primary residence, there is no capital gain exemption.

Make the Calculator Work for You

Understanding property tax is a critical piece to calculating how much owning a home truly costs. Property tax is not a one size fits all approach. Various towns/counties have a drastically different property tax rate. The higher the property tax is, the more your monthly or yearly payment will be.

The tax you pay on your property pays for a variety of expenses. Between the first responders salary, building and maintaining schools and parks, and even paving the roads, property taxes cover a wide range of expenses. Towns that properly manage their budget and spending habits tend to have a favorable tax rate.

 

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All material is presented for informational and educational purposes only and should not be construed as individual financial, investment, or legal advice or instruction. ZeroMortgage does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by ZeroMortgage. ZeroMortgage, its affiliates, and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. ZeroMortgage does not provide tax advice. Please contact your tax adviser for any tax related questions.

This page last updated: March 21, 2022