Assessed value and property tax

Value for taxation

Assessed value is the value assigned to property for tax purposes. Market value estimates what the property would bring in the market; assessed value serves the tax system. A sale price or a lender's appraisal does not by itself establish the tax bill. An ad valorem tax is based on value.

For a general exam calculation, follow three stages: determine assessed value, subtract applicable exemptions to find taxable value, and apply the tax rate. If an assessment ratio is given, multiply market value by that ratio first. Terminology, exemptions, assessment limitations, and tax procedures vary by jurisdiction; use the facts supplied in the question.

Turn value into tax

Suppose market value is $300,000, the stated assessment ratio is 80%, and the applicable exemption is $40,000. Assessed value is $300,000 × 0.80 = $240,000. Taxable value is $240,000 − $40,000 = $200,000. At 15 mills, the annual tax is $200,000 × 0.015 = $3,000.

One mill equals one dollar per $1,000 of taxable value. Thus 15 mills equals 1.5%, or $1.50 per $100. These are three ways to express the same rate. Match the rate's denominator before multiplying.

An exemption reduces the taxable base in this example, rather than reducing the bill dollar for dollar. A $40,000 exemption at 1.5% saves $600, not $40,000. A tax credit instead reduces tax owed. An appraisal limitation restricts a valuation measure; it is distinct from a ceiling on taxes.

Read the whole tax problem

Several taxing units can tax one property. Add their rates when they apply to the same taxable value. If their exemptions differ, calculate each unit's tax separately and then add the results. A higher assessment does not establish the amount of a tax increase without the rates and exemptions.

Keep the roles separate: valuation officials establish values for taxation, taxing authorities adopt rates, and collection officials collect payments. An owner challenging an excessive valuation should use the applicable assessment review or appeal process. A special assessment for a local improvement, such as a street project benefiting particular parcels, is distinct from the general ad valorem property tax. Do not confuse that charge with assessed value.

For exam math, write the chain before entering numbers: market value times any stated assessment ratio, minus applicable exemptions, times the correctly converted tax rate.