Congrats on the purchase of your first home! You’ve just reached a major life milestone. Hopefully you’re enjoying settling into your new kitchen and bedrooms, but it may take a little while longer to adjust to something else: your new tax rate.

Property taxes are a huge annual expense, even for the most financially secure households. Since you’ve already made a significant investment in your home, it’s important to be prepared for tax season so there are no unwelcome surprises.

In this guide, we’ll provide a comprehensive overview of property taxes, including the different types of property taxes, how property values are assessed, how to pay your taxes, and ultimately, how you can cut down on tax-related expenses. (Yes, it’s possible!) Let’s dig in.

Shocked by the amount of your first property tax bill? Sign up with Easy Tax and we’ll work to lower your bill next year—you only pay if you save!

An Introduction to Property Tax in the United States

First up, what are property taxes? A property tax is a financial charge levied by local governments on commercial and residential properties within their jurisdiction.

The purpose of property tax is to generate funds for community services. Since all property owners benefit from those services, everyone is required to contribute.

How much everyone contributes varies—the tax payable is a certain percentage of your property’s value. The specific percentage is set by individual cities and counties around the country.

Some parts of the country tend to have higher real estate taxes than others. For example, the average real estate tax rate in New Jersey is 2.46%, and in Montana it’s 0.83%.

How are property taxes calculated?

No matter where you live, the basic calculation for determining property tax is the same: (your home’s assessed value) ✕ (your area’s property tax rate) Say you live in San Antonio, Texas and your home is assessed at $270,000 — the median home price in the city in July 2024. The tax rate in San Antonio is 0.54159%, or 54.159 cents per $100 of taxable home value. That means your property tax would be $1,462.29.

The geographic differences that play into this calculation are:

• Property tax rates differ from one locality to the next.
• Different jurisdictions have different ways of determining assessed value and take different factors into account.
• Some localities only tax a portion of a property’s assessed value.

How are property taxes collected?

Many mortgage lenders divide your estimated annual property tax into monthly installments and bundle those into your mortgage payments. This money is set aside in an escrow account until the time payment is due.

Your lender will then pay the tax on your behalf. If the actual tax amount turns out to be higher or less than what you’ve already paid, you’ll either get a refund or have to pay more. This type of automatic saving system tends to be very helpful in the long run.

If you’ve taken out a private mortgage—or you’ve already paid off your home—then it’s your responsibility to pay the full amount when you receive the tax bill in the mail. Making these lump sum annual payments can be a burden on homeowners, so if this is the case for you, be sure to plan ahead.

Personal Property Taxes

In addition to taxing real estate, some states also tax movable property like mobile homes, cars, boats, trailers, heavy equipment, etc. Even among the states that do have personal property tax, they may tax different things—cars only, for example—and have different tax rates on various types of property. Some items are also not taxed if they are below a certain value.

Personal property is calculated in a similar way to real property, by multiplying the assessed value of the property by the local personal property tax rate.

Why are property taxes necessary?

The funds raised through property taxes are used to operate, maintain, and improve community services. For instance, some of the money collected via property tax might go toward creating a new bike path at the town park or snow plowing local roads during a blizzard. Schools, fire and police stations, libraries, water and sewer departments, and emergency services are all funded largely by property tax revenue.

Of all the tax types, property taxes generate the most revenue for the majority of local governments in the U.S.

The Assessment Process: Calculating the Value of Your Property

Your property tax bill is based on your home’s assessed value, which is a determination of its value used solely for tax purposes. This is different from its fair market value—what buyers would be willing to pay to purchase it.

How do government officials come up with the assessed value? Fair market value does factor in significantly. But so does its appraised value, or the amount the house is actually worth.