What Is Property Tax Assessment?

Property tax is most commonly based on the value of real property (improved or unimproved land) or the value of personal property. Authority to levy property taxes is defined by state law. Most property taxes are based on what is called "ad valorem," or the property's assessed or appraised value. Property taxes help pay for local government services, including public schools, fire and police, roads and bridge infrastructures, parks, streets, sewer and water treatment, garbage pickup and removal and public libraries.

History of Property Taxes

Property taxes are paid whether the property is generating income for the owner or not. Land and building tax is one of the nation's oldest forms of taxation. It existed before income and retail sales taxes and remains a large source of revenue for local governments and municipalities. Local governments collect taxes on both real and personal property, but are slowly shifting from taxing intangibles, like bank accounts and stocks and bonds.

Considerations for Tax Collection

Basically, four phases of property taxation exist: levy, appraisal, assessment and collection. The way property taxes are assessed can vary. Two basic methods are used to calculate taxes. The first method is for the taxing authority (assessor) to estimate its total expenditures over a given time period, then to divide that number by the assessed value of all property within its jurisdiction to come up with a rate, expressed as either a percentage or a whole dollar amount. In the second method, the assessor estimates the amount of taxes available from property tax levied at a specific rate, then it either increases or decreases its budget based on the total value of the property's taxable value. These taxes are paid once a year or in installments; some jurisdictions allow payment on a monthly basis.

Types of Property Assessments

Types of property that can be assessed are agriculture, livestock, notes, bonds, stocks, accounts receivable, commercial properties, motor vehicles, mobile homes, other personal property, residential, farms, swamp lands and waste materials. They are assessed by their fair market value (FMV).

Real Property Valuation

When the value of a property goes up, the taxes or the tax rates go up accordingly. There are many variables that affect the value of a piece of real property, such as additions, renovations, more availability of public utility services, access to shopping centers and stores, and other amenities. The reverse is also true of real property. If something happens to make the property less valuable, the tax assessment is reduced. You can always estimate the taxes on a home by looking up court records that tell you what was paid for the property and then by using your county's or municipality's formula structure to calculate what the owner pays. Some states also have what is called a homestead exemption, in order to keep the property's value from being affected by the amount of tax value. It is not automatic in most cases and must be applied for every year.

How Property Taxes Affect Income Taxes

Property taxes are fully deductible from your income. You cannot deduct property taxes held in escrow or mortgage impound accounts until payment is actually made to the taxing entity, but the tax advantages of home ownership far outweigh the liabilities. People who are purchasing their own homes can deduct the interest on the mortgage (in full if married filing jointly), lender points that were charged upfront at closing, interest paid on a home equity loan, interest paid on home loans, home office expenses, the costs of selling the property, capital gains exclusion (or a deduction on the sale), part of the costs of moving if the home was purchased as a result of a job transfer, and a mortgage tax credit for certain low-income home financers.