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Understanding Your Property Tax Bill
Property tax reduction starts by understanding how your property taxes are calculated.
Property taxes = ((Assessor’s value x assessment ratio) – homestead exemption) x property tax rate
The assessor’s value should be based on market value. It is referred to as the assessed or appraised value.
Assessment ratio is the portion of the assessed value that is taxable. Most states have different levels of assessment for different types of property. Residential is typically assessed for less than commercial property. Fourteen states simply have a 100% assessment ratio for all property; Alaska, California, Connecticut, Delaware, Florida, Nevada, New Hampshire, New Jersey, Ohio, Pennsylvania, South Dakota, Texas, Vermont and Washington.
Homestead exemptions vary from state to state and by tax entity to tax entity within a state. The cities within large municipal areas like Houston, Texas have different levels of homestead exemptions. Claiming your homestead exemption is a critical step in property tax reduction.
Property tax rates are levied by local tax entities such as city, county, school district and miscellaneous districts such as municipal utility district, fire department, community college, hospital district, flood control and others. Property tax rates are typically set annually by each school district. They calculate the tax rate based on their budget / taxable property. For example, if a city has a budget of $1,000,000 and a tax base of $200,000,000:
Property Tax Rate = $1,000,000 / $200,000,000 = 0.5%
Reducing Your Property Taxes
Property tax reduction starts with: 1) claiming your homestead exemption and 2) appealing property taxes annually. Each appraiser in the tax assessor’s office routinely values 10,000 or more properties in a few months. The accuracy of these guesstimates varies depending on the accuracy of property information and data used to estimate value. Neither is highly reliable given the thousands of properties each appraiser values. You have a right to reduce your property tax assessment. Most tax appeals are successful. Annual appeals are a key component of property tax reduction.