What Are Property Taxes? 

By definition, property taxes are a form of “ad-valorem” tax, which means they’re based on the assessed value of owned real estate property. However, many jurisdictions also tax tangible personal property, such as cars and boats. Property taxes are calculated by the local government where the property is located and paid by the owner of the property. 

Why Do We Have To Pay Property Taxes? 

Property taxes are used to fund school districts, community amenities, sewer improvements, law enforcement, road construction, libraries, fire protection, and other services that benefit the community. 

How Are Property Taxes Calculated?

Property tax rates and the types of properties taxed vary by jurisdiction, and state and local laws determine how the property tax rate is calculated. The national average property tax rate is 1.07%, Maryland’s is 1.06%, DC’s is 0.56%, and Virginia’s is 0.80%. Rates will vary slightly by city, so make sure to check with your local government for a more accurate number. Nevertheless, property taxes are evaluated using the property’s value multiplied by the city’s tax rate. Property Tax = Assessed Value x Tax Rate. Remember that many factors go into each portion of this equation, so the answer you get will only be an estimate! 

To estimate your property’s value, you can look at comparable properties in your neighborhood or it can be calculated by a home assessor who works with a local taxing authority. They use several factors to develop an assessed value, including the physical home, the land, and other personal property. Keep in mind that the assessed value doesn’t necessarily match the appraised value, and many states have laws that limit assessed value to a percentage of your appraised value. Generally, the value of your home and the local property tax rates are reevaluated every year, so be prepared for things to change year after year! 

Example of Property Taxes 

For example, if you live in Maryland and own a $280,000 home…

$280,000 x 1.07% = $4,760

You would pay $4,760 annually for property taxes! 

How Are Property Taxes Paid?

Luckily, many mortgage lenders include the tax payment as a part of the homeowner’s monthly payment. They often collect the tax payment and place it in an escrow account, which is then tapped into to make the tax payment when it’s due. Homeowners can choose to make annual or semi-annual payments directly to their tax authority when they’re due, however, mortgage lenders can put their own restrictions on this option so they can be sure your home won’t be taken in a tax foreclosure. 

Are There Property Tax Exemptions? 

In some cases, people can qualify for a property tax exemption. Seniors, veterans, and homesteaders can often get their property taxes lowered, but not necessarily eliminated altogether. 

Is It Possible To Deduct Property Taxes From Federal Taxes? 

Up until 2017, state and local taxes have been deductible in full from federal tax income. However, now, they capped these deductions at $10,000. 

How To Navigate Property Taxes When Purchasing A Home

We know how difficult it can be to navigate through property taxes, especially when purchasing a new home. Ensuring that you factor property taxes into your monthly budget is an important step that many families forget when buying a home! The Reynolds Team and our in-house mortgage lending company, Empower Home Mortgage, are fully-equipped to help prospective homeowners understand property taxes and foster confidence when paying and calculating them for years to come. If you need a guide during this monumental chapter in your life, please don’t hesitate to reach out to us for advice and guidance! Call us at 571-781-0421!