What is Property Tax

Property tax is an annual tax levied by local governments on real estate based on the assessed value of the property — a major ongoing cost of homeownership that funds schools, emergency services, and local infrastructure.

Property tax is a recurring tax assessed by local governments (counties, municipalities, and school districts) on real estate based on the property's assessed value. It is one of the most significant and unavoidable ongoing costs of homeownership, and the primary revenue source for most local governments — funding public schools, fire and police departments, road maintenance, and other services.

How Property Tax Is Calculated

Property taxes are calculated using two key figures:

Property Tax = Assessed Value × Tax Rate (Mill Rate)

Assessed value — determined by the local tax assessor; may or may not equal the property's market value. Many jurisdictions assess at a fixed percentage of market value (e.g., 80% assessed value = 80% of the appraised market value)
Mill rate (or millage rate) — the tax rate expressed in mills (1 mill = $1 per $1,000 of assessed value). A mill rate of 20 means $20 per $1,000 of assessed value, or 2%

Example

A home assessed at $350,000 in a jurisdiction with a 1.2% effective tax rate:

Annual property tax = $350,000 × 0.012 = $4,200/year ($350/month)

Property Tax Rates Vary Significantly by Location

Property taxes vary enormously across states and even between neighboring counties:

High tax states: New Jersey (~2.2%), Illinois (~2.1%), Texas (~1.7–2.0%)
Low tax states: Hawaii (~0.3%), Alabama (~0.4%), Colorado (~0.5%)

This is a critical factor in total homeownership cost and is one reason homes in low-property-tax states can be more affordable to own on a monthly basis than their prices suggest — and vice versa.

How Property Taxes Are Paid

Most homeowners pay property taxes one of two ways:

Through escrow — if you have a mortgage, your lender likely collects a portion of your estimated annual taxes in each monthly payment and holds it in an escrow account, then pays the tax bill when it comes due
Directly to the taxing authority — if you own your home free and clear, or if your lender doesn't require escrow, you pay the bill directly — often in two installments per year

Challenging Your Property Tax Assessment

You have the right to appeal your assessed value if you believe it's too high. Common grounds for appeal:

The assessment exceeds the current market value
The property's characteristics (square footage, bedrooms, condition) are inaccurate in the assessor's records
Comparable properties in your area are assessed at lower rates

The appeal process varies by jurisdiction but typically involves:

Reviewing your assessment notice and the assessor's property record
Gathering comparable sales data
Filing an appeal by the deadline (often 30–90 days after assessment notices are mailed)
Presenting your case to the assessor or an appeals board

Property Tax Exemptions and Deductions

Many jurisdictions offer exemptions that reduce the taxable value of your home:

Homestead exemption — reduces the taxable value for primary residences; amounts vary widely by state
Senior citizen exemptions — reduced rates or frozen assessments for homeowners above a certain age
Veteran exemptions — reduced taxes for qualifying veterans
Disability exemptions — for homeowners with qualifying disabilities

Additionally, property taxes paid during the year may be deductible on your federal income tax return under the SALT (State and Local Tax) deduction — though this deduction is capped at $10,000/year for households under current tax law (as of 2026).

When budgeting for homeownership, always research current property tax rates for the specific area and municipality you're considering — not just the county or state average.