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What Are Real Estate Taxes & How Are They Calculated?

Real Estate

Real estate taxes are levied by local governments to fund services and projects like schools, libraries, roads and bridges. They’re typically included as part of monthly mortgage payments, but if you don’t know what those are – you may seem lost.

Real estate and property taxes are frequently used interchangeably; however, they actually refer to distinct forms of taxation. Real estate or real taxes are levied based on an assessed value of homeowner residences multiplied by a predetermined percentage set forth by local municipalities to come up with their assessment value which then becomes used for real taxes calculation.

Property tax revenue is a vital source of local government revenues. By collecting taxes on real estate owned by residents, counties, cities, towns, villages, school districts and special districts raise funds that go toward school funding, paying police and fire protection, maintaining roads and providing other municipal services that benefit residents. To learn more about real estate taxes, read the following article.

Assessed Value

Assessed value is the dollar figure assigned by the government for taxation purposes and should reflect several factors, including comparable home sales, current real estate market conditions and home inspection reports to arrive at an accurate evaluation.

Assessors also take into account the size, quality, and location of your property when conducting evaluations. However, the process can differ depending on which city or region is being evaluated; some cities use an algorithm for this task while others have assessors visit each home they evaluate in person.

Depending on your state, you may be eligible to challenge the assessed value of your property. An accurate appraisal can help you set an acceptable asking price when selling; similarly if purchasing a new home you want to be certain you’re paying fair market value for what you buy.

As a homeowner, it’s crucial that you keep track of how your homes assessed value changes over time. Your tax-assessed value could increase after renovations or decrease due to areas with decreased demand; so speaking to your real estate agent about differences between assessed and market values would be worthwhile.


To determine the amount of tax a jurisdiction collects, they begin with its total taxable value and divide this total by an arbitrary class share number determined through state law formulas. This method aims at keeping shares stable over time while still providing for annual adjustments based on changes in market value or physical condition of properties in their jurisdiction.

Once the class share has been determined, it can be multiplied by the statutory property tax rate to calculate annual property tax liability. According to, liable parties for paying such taxes include individuals, business entities and legal entities such as corporations and real estate companies. A usufruct could also be held liable if all ownership rights have been relinquished but still retain usufruct rights within their possession – only their taxes for usufruct rights remain due.

When property owners fail to pay the taxes they owe, tax agencies conduct investigations. By law, they must send warning notices followed by a Notice of Intent to Levy which gives taxpayers time to either settle their debts or make other arrangements.

Once the levy period has expired, the IRS can legally seize and sell property belonging to any liable taxpayer in order to cover unpaid debts. They usually offer hearings prior to seizing any assets; levies are considered among the more serious stages of collection for startups.

If communication fails and taxpayers cannot find ways to resolve their issue or make alternate arrangements to pay their debt, filing bankruptcy could be considered; this course usually only remains an option when all other methods fail; bankruptcy filing costs could exceed its discounted fire sale proceeds by far.

Tax Exemptions

Property taxes can eat away at homeowners’ incomes significantly and be one of the major determining factors when purchasing either residential or commercial real estate. Luckily, many jurisdictions provide exemptions that help lower property tax bills.

According to this official document – if a person moves or passes away, in order to continue receiving an exemption they must reapply for it; unfortunately this is not always done and as a result when their property is sold it may show up on their new owner’s tax bill as their restored factor from the previous homeowner was not applied for properly.

Buyers can prevent this problem by requesting a copy of the property tax bill before closing. A title company can assist by searching the new tax database; parties can enter an escrow agreement for payments related to restore factors.

When purchasing property, buyers should ask their seller whether any exemptions apply and request a copy of their current tax bill as proof. Doing this can prevent unexpected surprise increases on future tax bills when exemptions are removed.

Attorneys should set calendar alerts so they will know when new tax amounts are billed, and also prepare a tax projection so clients won’t be surprised by sudden tax bills. Doing this helps build trust between themselves and clients as it encourages timely payments.

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