Property Tax
Property tax is an annual tax levied by local governments based on the assessed value of your home. It's a major part of homeownership costs, typically ranging from 0.5% to 2.5% of assessed value depending on where you live. Property taxes fund local schools, roads, fire departments, and other public services.
Property tax rates vary dramatically by location. In New Jersey, the effective rate averages about 2.2%—so a $400,000 home generates roughly $8,800/year in taxes. In Hawaii, the rate is about 0.3%, meaning the same $400,000 home costs only $1,200/year. Texas has no state income tax but high property taxes averaging 1.6%, while California has Proposition 13 limiting rate increases for long-term owners.
Most mortgage lenders require property taxes to be paid through an escrow account. Each month, 1/12 of the estimated annual tax bill is collected with your mortgage payment and held until the tax due date. If you buy a home in November and taxes are due in December, you might need to bring several months of tax prepayments to closing.
Property assessments can be appealed if you believe the assessed value exceeds market value. Many homeowners successfully reduce their tax bill by providing evidence of lower comparable sales. Exemptions also exist for homeowners who use the property as their primary residence (homestead exemption), veterans, seniors, and disabled individuals.
Key Takeaway
Property tax is an annual tax levied by local governments based on the assessed value of your home. It's a major part of homeownership costs, typically ranging from 0.5% to 2.5% of assessed value depending on where you live. Property taxes fund local schools, roads, fire departments, and other public services.
Related Terms
Frequently Asked Questions
Assessed value × tax rate = annual tax. If your home is assessed at $350,000 and the rate is 1.2%, your annual tax is $4,200, or $350/month added to your mortgage payment through escrow.
Yes. Most jurisdictions reassess properties periodically. When a home sells, the assessment is often reset to the sale price. Annual tax increases are common and vary by local policy.
Yes, up to $10,000 per year combined for state and local taxes (SALT deduction cap) for taxpayers who itemize deductions. This cap has been in effect since the 2017 Tax Cuts and Jobs Act.
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