📖 Tax Glossary
Property Tax
Property tax is a tax paid by homeowners (and sometimes landowners) based on the value of their property. Local governments—usually counties, cities, or school districts—use property taxes to fund public services like schools, police, fire departments, and roads.
Simple definition
Property tax is a tax you pay once or twice a year on real estate you own. The amount is based on the estimated value of your home or land.
🧮 How property tax is calculated
Your property tax =
Assessed Value × Local Tax Rate
Where:
- Assessed value = what the county or appraisal district thinks your property is worth (may be lower than market value)
- Tax rate = a percentage set by your city, county, and school districts (often expressed as dollars per $1,000 of value)
🏘️ What property taxes pay for
Property taxes typically fund:
💰 Exemptions and discounts
Many states offer property tax exemptions to help reduce your tax bill:
- Homestead exemption — reduces taxable value for primary residences
- Senior or disabled homeowner exemption — additional relief for qualifying homeowners
- Veteran exemption — benefits for military veterans
- School district exemptions — specific exemptions for school taxes
💡 Important: These exemptions reduce the taxable value of your property, not the tax rate itself.
📋 Do property taxes affect your federal tax return?
Yes—if you itemize deductions, you can include property taxes as part of your itemized deductions.
⚠️ SALT Deduction Cap
The SALT (State and Local Tax) deduction—which includes property taxes, state income taxes, and sales taxes—is capped at $10,000 per year on federal returns.
📊 Visual example
Calculating your annual property tax
Calculation:
$400,000 × 0.02 = $8,000
💡 This amount may be paid through your mortgage escrow account (monthly with your mortgage payment) or paid directly to the county (once or twice a year).
💳 How to pay property taxes
Through Mortgage Escrow
Your lender collects a portion each month and pays the tax bill on your behalf.
✅ Convenient, automatic payment
Direct to County/City
You pay the county or city directly once or twice a year (if no mortgage or escrow waived).
⚠️ Requires planning for large payments
📚 Browse More Tax Terms
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