Property Tax 101: How Property Taxes Are Calculated

Property Tax 101: How Property Taxes Are Calculated gives you a clear, step-by-step way to understand what drives your bill, what to verify on your notice, and what to do if the numbers look off.

Local property taxes fund community services – think schools, police, parks and roads 1

• and often make

up the largest share of local tax revenue. Yet many homeowners find the calculation complex. In simple terms, property tax is an ad valorem tax on property value, determined by multiplying your home’s assessed value by the local tax rate (often expressed per $1,000 of value). For example, Investopedia explains that “property taxes are calculated by multiplying the mill levy by the assessed value”. (One mill is $1 of tax per $1,000 of assessed value.) This means if your home’s assessed value is $200,000 and your rate is 20 mills ($20 per $1,000), your annual tax bill would be $4,000 (200 × $20). Property taxes vary widely by location. In 2025, the typical effective rate nationwide is roughly 1% of home

value 5. Some states have much higher rates: New Jersey homeowners pay around 2.1% of value (22.3 mills) on average 6 4 , whereas Hawaii’s rates are below 0.3% 6 . These differences reflect local budgets and policies. Understanding the assessed value and tax rate is key to estimating your bill. Key Components of Calculation

• Assessed Value: This is the value your county or city assessor assigns to your property for tax

purposes. In many places this initially estimates the fair market value as of the lien date. The assessor might look at comparable sales or use cost-based or income-based methods (see below) to value your home.

• Exemptions (if any): Before applying the rate, subtract any exemptions (for seniors, veterans, etc.)

from the assessed value to get a taxable value. For example, some areas deduct a flat amount for a homestead exemption.

• Tax Rate (Mill Rate): Local governments set this each year based on needed revenue. It’s often

shown in mills or a percentage. For instance, New York State shows tax owed = (taxable assessment) × (rate per $1,000). If the rate is $50 per $1,000, a $150,000 assessed home owes $7,500.

• Calculation: Finally, multiply the taxable value by the rate. In formula form:

Taxes Owed = (Assessed Value – Exemptions) × (Tax Rate per $1,000). For example, if your home’s assessed value is $300,000 and you have a $50,000 exemption, your taxable value is $250,000. If the tax rate is $30 per $1,000, your tax is $250,000/1,000 × $30 = $7,500. Example Calculation Suppose Town A needs $2,000,000 in revenue and the total assessed value of all properties is $40,000,000. The town’s rate would be $2,000,000 ÷ $40,000,000 × $1,000 = $50 per $1,000. A homeowner with a $150,000 assessed home (before exemptions) would owe 150 × $50 = $7,500. This illustrates how the tax levy (budget), total assessment base, and individual assessment combine to determine your bill.

1 Millage and Effective Rate In practice, many areas report a mill rate (tax per $1,000 of value) rather than a simple percentage. However, you can convert between them: 10 mills = 1%, 20 mills = 2%, etc. For instance, a 22.3 mill rate means 2.23% of assessed value. Indeed, a home assessed at $400,000 with a 22.3 mill rate has taxes of $400k/1,000 × 22.3 = $8,920. Key Takeaway: Property taxes = assessed value × tax rate. To estimate your bill, find your home’s assessed value from your tax notice, subtract any exemptions, then apply the current rate (or millage). Many counties provide a tax calculator online.

Next steps

• Use the Property Tax Estimator to sanity-check your bill.
• If something looks off, run a quick Appeal Savings scenario.
• Scan the Articles list for related topics like exemptions, deadlines, and escrow planning.