Property Tax Assessments

A property tax assessment usually estimates what real property is worth. In residential property, it does not include tangible personal property like furniture. Instead, taxing authorities will look at the taxable value of the land and the improvements (buildings) on it. A county government audit or reassessment determines real estate taxes for each tax year.

This property valuation helps decide what part of the local property tax levy to bill. Once the assessor determines this, the value gets multiplied by the tax rates, sometimes known as the "mill rate." This determines how much tax the owner must pay on that property. Many state tax laws use full market value (or a fraction of it) in their assessment processes for property tax bills.

Assessors "value" property for ad valorem tax purposes. For example, a real estate assessment may determine property value through its:

• Actual cash value
• Appraisal value
• Fair market value (FMV)

Despite these similar terms, most states focus on "market value." Market value is the amount of money a typical, knowledgeable buyer (unrelated to the seller) would pay for a parcel of property. To calculate the market value of property, an assessor will determine if there have been changes in the local real estate market. The assessor will examine:

• What different types of property are selling for in a location
• Local construction costs
• Normal operating expenses like utilities
• Nearby rental rates
• Inflation

Sometimes, taxing authorities issue special assessments to fund projects approved by voters. These can increase property taxes. Also, changes in the above factors may increase a property's assessed value. If a property owner disagrees with the amount of taxes or requires tax relief, they may file an assessment appeal.

Assessing Personal Property

This article primarily focuses on property assessment in the real estate context. It discusses frequently asked questions (FAQs) about land and building taxes. Personal property includes moveable objects like computers, tables, or televisions. Personal property gets taxed at the time of sale, and unlike real estate, it is usually not subject to yearly assessments. But, you might have to pay personal property taxes on business machinery or equipment yearly.

To assess most personal property, appraisers use information on personal property statements filed by a property owner. If the property owner does not provide information about the value of their personal property, the assessor estimates the property's value using acceptable appraisal data. This includes considering factors such as age, cost, and property type. Different states and localities charge different tax rates on personal property.

Assessing Real Property

There are three principal methods for assessing the value of real property. These differ based on the type of property.

1. The cost (or replacement) method. This method is for assessing buildings or other structures. Assessors estimate how much it would cost to replace a given structure using current rates for material and labor. An assessor will deduct the property's reasonable depreciation but add the land's value. This approach is most appropriate when the assessment is of a new and unique or specialized property. It is also useful when there are no meaningful sales of comparable properties.
2. The income method. Under this method, assessors estimate the amount of income from a piece of property if it is a commercial property. This method is for apartments, stores, warehouses, shopping centers, and office buildings. To arrive at an assessment, the assessor considers the business taxes, the income the property may generate, insurance costs, vacancy rates, operating expenses, maintenance costs, and the current interest rate charged for borrowing money to make improvements or repairs on such a property.
3. The market or sales comparison method. Here, the assessor compares sales of similar properties to each other and adjusts for differences. Most residential real estate gets appraised by using the market or sales comparison method. This approach is like banks' valuing property when considering a mortgage.

Most states appraise various classes or types of real estate using other approaches to value. For example, farmland or timberland may get appraised on its use or level of productivity. Business inventories may get assessed based on the business's records and the state of its machinery and equipment. Assessors may even combine approaches to arrive at a fair appraisal of a piece of property.

Taxpayers have a right to fair appraisals. Also, no property class should get over- or under-valued in relation to similar properties within a given area. Even so, it is up to individual property owners to monitor their assessments. Contact your local assessor's office to find out their appraisal method.

Related Resources

• Property Tax Exemptions (including for disabled veterans)
• Homeowner Tax Deduction List
• State Tax Forms

Get a Free Legal Evaluation of Your Property Tax Issues

No one likes paying taxes, but they're a necessary evil and contribute to the value of your home. They improve society by providing money for public parks, fire protection, police, and other vital resources. But sometimes homeowners face limited tax payment options. When facing large tax bills, they might become delinquent. Even worse, unpaid taxes can result in liens and even the forced sale of your property. You should speak with a real estate attorney if you have legal questions about your property tax assessment. They can help you verify the accuracy of your taxes and appeal any mistakes by the assessors.