Knowing how to calculate property tax is very important for both potential and existing homeowners.
When looking for a home, knowing how to calculate property tax will help you know whether you will be able to afford its property tax. Knowing the amount you’ll pay in property tax for the next year will also be helpful for determining your yearly budget.
Despite its importance, many first time homeowners are unsure how to calculate property tax. But don’t worry, you came to the right place! We will walk you through everything you need to know about property tax.
What is Property Tax?
Let’s start with what property tax is. Property tax is a tax on property owned by an individual or another entity. The local government uses property taxes for local services, such as school districts, police departments, fire departments, and road construction.
Property tax is calculated by the local government and is paid by the property owner. Those who rent property may also indirectly pay property tax if their landlord factors the cost of property tax into their monthly rent cost.
Property tax varies based on the value of the property and the location of the property.
How to Calculate Property Tax
Property tax is calculated by multiplying the local tax rate by the market value of the property.
Property tax= tax rate x current value of property
The Tax Rate
The tax rate varies by location. The local taxing authorities typically recalculate the tax rate annually, so make sure to be aware of the current tax rate in your area.
You may see the tax rate expressed as a number of mills instead of a percentage. This is because the tax rate that is used to calculate local property taxes is called a millage rate. In millage rates, one mill is equal to 1/10 of a cent.
For example, a local property tax of 10 mills means that homeowners pay $10 for every $1,000 in home value. So, if a home has an assessed value of $400,000, the homeowner would be taxed $4,000.
The Property Value
Local taxing authorities keep track of the value of every piece of property in their district. They typically will value each piece of property every 1-5 years and charge the property owner the appropriate property tax rate according to this value.
Property Tax in California
The overall property tax rate today in California is 0.77%, which is lower than the national average of 1.08%.
As stated before, property tax rates vary from location. Therefore, cities within California have slightly different rates. Here are the current rates for some of California’s largest counties:
- Los Angeles County- 0.755%
- San Diego County- 0.757%
- Orange County- 0.684%
- Sacramento County- 0.839%
- San Francisco County- 0.649%
Stay up-to-date on your counties tax rate by using this property tax calculator!
What is a Homestead?
A homestead refers to a homeowner’s primary residence. The laws pertaining to homesteads vary by state, but most states have a legal provision called homestead exemption.
The main benefits of homestead exemption are that it offers:
A tax break for property taxes on primary residence.
Protection from a foreclosure by unsecured creditors if you declare bankruptcy or nonpayment.
Ongoing tax relief after the death of a homeowners spouse
The way homestead exemption is applied varies by state, so be sure to know how it works in your state.
How to Pay Your Property Tax
There are two main ways to pay your property tax bill:
- Pay online or write a check to the local tax office when you receive the bill
- Set aside money in escrow and pay it as part of your monthly mortgage
If you would like to pay online or write a check, be sure to check your local county’s tax assessor website for details on how to do so.
If you would like to set aside money and pay the property tax bill as part of your monthly mortgage, you will essentially be saving up for the bill. When the bill arrives, the escrow company will use the money you set aside in the escrow account to pay the tax bill.
If you need more information or help with property taxes, New Venture Escrow is here to help! Our team and top-notch digital escrow service can help make the process for paying property tax easier.
To learn more or get started by contacting New Venture Escrow today!