Property Tax 101: What Homeowners Need to Know

No one likes to pay property tax but knowing how property taxes work might make the situation more bearable.

block house with a dollar sign inside for property tax story
(Image credit: Getty Images)

Property tax is a fact of life for U.S. homeowners. 

  • You pay property taxes for as long as you own your home. 
  • How much you pay in property tax will depend on where you live and the assessed value of your property, and the amount you pay might change over time.

But there's more. Understanding how property taxes work and why you pay them might make this less-than-desirable part of homeownership a little easier. So, here's what else you need to know.

What is Property Tax?

Property tax is a recurring fee you pay to your local government (usually county, city, or school district). 

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Some local governments collect property taxes once per year, but others might collect the fee more often. Real estate property taxes are paid on non-moving properties, like your primary residence or a vacation home. Those differ from personal property taxes, which tax other types of property like vehicles.

How Are Property Taxes Calculated?

To calculate your property taxes, an assessor will perform a tax assessment to determine what your property is worth. That number can differ from the appraised value of your home, which represents a property’s market value (resale value) rather than its taxable value. 

To find the tax-assessed value, tax assessors might consider several factors including:

  • The condition of the property
  • Characteristics of the property (size, number of bedrooms, etc.)
  • The market conditions in your area. (These can fluctuate and cause your property tax liability to change.)

Additionally, any improvements you make to your property, like adding a pool, for example, can also increase your property taxes. 

Note: If you feel your taxes are too high, you may have grounds to appeal your property tax bill. However, appealing your new assessment does not guarantee that the assessment will change. 

Why Are Property Taxes Levied?

Property taxes are levied to collect revenue that the state can use for other things. Local governments often use the revenue from property taxes to fund important initiatives in your community. Valuable resources, like your local fire and police department, and libraries also benefit from property taxes. 

Funds from collected property taxes might also be used to improve roads and other infrastructure and for public schools. If no one paid property taxes, key state services, and infrastructure might not receive the funding they need to serve the community.

Are Property Taxes Included in Mortgage Payments? 

Estimated property taxes are often rolled into your monthly mortgage payments, so you might not need to worry about making separate property tax payments while you are paying off your home. 

However, because these property tax payments are estimated amounts, there are no guarantees that your mortgage will cover your full property tax bill. So, you might find yourself paying a little more when taxes are due, but that also means you could receive a property tax refund if you overpay.

When You Don’t Pay Property Taxes 

If you don’t pay your property taxes on time, you might encounter additional fees that local governments will add to your bill. It is important to pay your taxes as soon as you can, not only to avoid these extra fees but to avoid having a lien placed on your property. Tax liens prevent you from selling your home until you have paid your back taxes. A tax lien can eventually result in a foreclosure, meaning you could lose ownership of your home due to unpaid taxes

Tip: Paying a large property tax bill at the end of the year can feel painful, but saving a little each month (like you would for rent or a mortgage) can help it feel much more manageable. If you are worried about paying your property taxes, you can check for programs in your area that can reduce the amount you would owe.

Property Tax Exemptions and Deductions 

Some people can write off property taxes paid on their federal income tax return, which can lower taxable income (and potentially your income tax bill). However, to deduct property taxes, you will need to itemize deductions, so it’s not the best option for everyone. 

What about the homestead exemption? You may also have heard of the homestead exemption, which can help minimize property taxes. If granted, a homestead exemption can help protect your primary residence from foreclosure in some cases involving bankruptcy and/or the death of a spouse. 

Most states reserve homestead exemption eligibility for Veterans, people living with disabilities, older adults over age 65, and first responders. But the rules for the homestead exemption vary by state.

Katelyn Washington
Tax Writer

Katelyn has more than 6 years’ experience working in tax and finance. While she specializes in tax content, Katelyn has also written for digital publications on topics including insurance, retirement and financial planning and has had financial advice commissioned by national print publications. She believes that knowledge is the key to success and enjoys helping others reach their goals by providing content that educates and informs.