From assessed value to your annual bill
Property tax is the workhorse of local government finance, paying for public schools, roads, emergency services, and the day-to-day running of your town or county. Crucially, the tax is not charged on what your home would fetch on the open market. It is charged on the assessed value, which the local assessor derives by multiplying the market value by an assessment ratio. Apply the local tax rate to that assessed figure and you have your annual bill.
The property tax formula
Assessed value = Market value × Assessment ratio
Annual tax = Assessed value × Tax rate
where the assessment ratio sets how much of market value is taxable and the tax rate is the local levy. Exemptions such as a homestead exemption reduce the taxable base before the rate is applied, lowering the final bill.
Worked example
Take a home with a $400,000 market value in an area that assesses at 100% and levies a 1.2% rate — that's 12 mills. Here is how the bill comes together:
| Step | Amount |
|---|---|
| Market value | $400,000 |
| × Assessment ratio100% of market value is taxable here — this is the assessed value | $400,000 |
| = Annual property tax1.2% rate on the assessed value — an effective 1.2% of market value | $4,800 |
| = Monthly equivalentroughly what a lender adds to each mortgage payment for escrow | $400 |
Computed with this calculator's default settings — open the tool above and you'll see the same numbers, then change any input to match your own home.
Mills, assessment ratios, and the effective rate
Many jurisdictions quote a millage or mill rate rather than a plain percentage. One mill is one dollar of tax per one thousand dollars of assessed value — that is, 0.1 percent — so a 12-mill rate works out to 1.2 percent. Dividing the mill figure by 10 converts it straight to a percentage.
The assessment ratio matters just as much as the rate. Where assessed value is deliberately set below market value, the effective rate on what your home is actually worth is lower than the headline rate suggests. Assessment caps that limit yearly increases, and exemptions that carve out part of the value, push the effective burden lower still. When comparing two homes, always look at the effective rate on market value rather than the quoted millage alone.
Paying, deducting, and appealing
- It is usually paid through escrow. If you carry a mortgage, the lender typically collects a twelfth of the annual tax with each monthly payment and remits it to the taxing authority when due.
- It may be deductible. Property tax counts toward the state and local tax (SALT) deduction, subject to a cap, if you itemize rather than take the standard deduction.
- You can appeal an assessment. If you believe the assessed value overstates your home’s worth, most jurisdictions let you file an appeal with supporting evidence to have it lowered.
Property tax is one of the recurring costs of owning a home, so it pays to fold it into the bigger picture. Estimate your monthly payment with ourmortgage calculator, gauge how much house you can manage with thehome affordability calculator, and budget for the upfront expenses with theclosing cost calculator.
Frequently asked questions
How is property tax calculated?
Property tax starts from your home’s assessed value, not necessarily its market value. The assessor multiplies the market value by an assessment ratio to set the assessed value, and your annual tax is that assessed value multiplied by the local tax rate. In short: assessed value = market value × assessment ratio, and annual tax = assessed value × tax rate. Exemptions, such as a homestead exemption, reduce the taxable base before the rate is applied.
What is a mill rate?
Many jurisdictions quote property tax as a millage or mill rate rather than a percentage. One mill equals one dollar of tax per one thousand dollars of assessed value, which is the same as 0.1 percent. So a 12-mill rate is simply 1.2 percent. To convert mills to a percentage, divide the mill figure by 10; to find the tax, multiply the assessed value by the mill rate and divide by 1,000.
What’s the difference between assessed and market value?
Market value is what your home would likely sell for today, while assessed value is the figure the local assessor uses to compute tax. The two are linked by the assessment ratio: where assessed value is set below market value, the effective rate on what your home is actually worth is lower than the headline rate. Assessment caps and exemptions can hold the assessed value down even when market prices rise.
How is property tax paid?
For most homeowners with a mortgage, property tax is collected monthly through an escrow account. The lender adds an estimated twelfth of the annual bill to each mortgage payment, holds it in escrow, and pays the taxing authority when the bill comes due. Homeowners without a mortgage typically pay the local tax office directly, often once or twice a year.
Can I lower my property tax?
There are a few avenues. You can apply for exemptions you qualify for, such as a homestead, senior, or veteran exemption, which shrink the taxable base. You can also appeal an assessment you believe is too high by presenting evidence that the assessed value overstates your home’s worth. Keeping track of assessment caps in your area can help too, since they limit how fast the taxable value can climb.
Sources
The official figures this page quotes are drawn from the primary sources above — check them (or a qualified professional) before relying on a result.
Disclaimer: This calculator is foreducation and illustration only. Property tax rules, assessment ratios, mill rates, exemptions, and deduction limits vary widely by jurisdiction and change over time, so the figures it produces are estimates rather than an official tax determination. Nothing here is tax, legal, or financial advice.