Calculate Property Tax-The Simple Way vs the Complicated Way

How to calculate property tax was an issue my wife and I discussed last spring.  It’s a reassessment year in our county and we were trying to figure out what the new tax bill might be.

I remembered from real estate school there was a formula that had about four steps to it.  Being a Realtor also, I was surprised to hear my wife say ‘you are doing it wrong’ because as a real estate paralegal (her full time job) she ‘knew’ how to calculate property tax. Yeah? We’ll see!

After a bit of research we realized we were both right.  There is a simplified way to calculate property tax and there’s a bit more complicated way.  It turns out the complicated way is, well, complicated.

CALCULATE PROPERTY TAX-QUICK AND EASY

The super simplified way calculate property tax is by taking the assessed property value, multiply it by the mill rate and divide by a thousand.

Um, ok, but what is the assessed property value and what is a mill rate?

Great questions. The assessed property value is the value the tax assessor places on your property.  This is usually different from what a licensed home appraiser would come up with, or what a buyer might be willing to pay.

A mill rate, is recognized as 1/1000th of a number.  It’s decided by the local governing authority based on what the budget needs are.  What ever the number is, divide by 1000.

Here’s an example of how to calculate property tax:

A home is valued at $100,000.  The mill rate is 20.  The calculation is:
$100,000 x 20 / 1000 = $2,000.

It’s pretty easy stuff; assessed property value multiplied by the mill rate (since mill rate is 1/1000th of a number you must divide by a thousand).

CALCULATE PROPERTY TAX–THE COMPLICATED WAY

Let’s assume this year is a tax reassessment year and your county needs ten million dollars to meet its budget demands, up from eight million three years ago. This amount includes the basic government services along with all current and future projects that have been approved by the board of trustees.

Once the budget amount has been calculated (ten million) the tax assessor will reassess the property values in order to meet the budget amount.

The tax assessor will take into consideration the estimated property value, proposed assessed valuation, state equalizer, exemptions and the current tax rate when establishing property taxes.

The following is an example:

Let’s say your home is worth $100,000 and the county has your assessment level at 10%.  Your tax will show a home value of $10,000. This is called a Proposed Assessed Valuation.

The tax assessor takes the Proposed Assessed Valuation and multiplies this by something called a State Equalizer.  In this example, the State Equalizer is 2.8439.  When you multiply the Proposed Assessed Valuation with the State Equalizer you’ll get the Equalized Assessed Value, or $28,439.

Once the tax assessor knows the Equalized Assessed Value he’ll subtract any type of exemptions you might have such as a home owner’s exemption or a senior’s exemption.  If this home is your primary residence then you’ll qualify for the home owner’s exemption of $5,500.  This means your Adjusted Equalized Value is $22,939.

Finally, the tax assessor will multiply the Adjusted Equalized Value with the Tax Rate which is adjusted every tax reassessment year.  This year, the tax rate is 10%.  When the Adjusted Equalized Value is multiplied by the tax rate ($22, 939 x 10%), the resulting number is your estimated property tax bill or $2,293.

Whew! Say that three times real fast.

At the end of the day, it’s much easier to use the first method to give you a general idea of what your taxes might be.  However, the second way is more indicative of how it’s really calculated. In order to get all of the necessary numbers you would need to call your tax assessors office and ask.

In summary, there are two ways to calculate property tax, the simple way and the complicated way.  The simple way is very easy but it’s only a close guess. On the other hand, the complicated way is far more difficult but much more accurate.