Buying Process
Last updated: Jan 20255 min readProperty Taxes Explained
How property taxes work and what to expect
Property taxes fund local services like schools, roads, and emergency services. Understanding how they work helps you budget accurately.
1How Property Taxes Are Calculated
The basic formula:
Assessed Value × Tax Rate = Annual Tax
Example:
Tax rates vary significantly by location—from 0.3% in Hawaii to 2.5% in New Jersey.
Assessed Value × Tax Rate = Annual Tax
Example:
- Assessed value: $300,000
- Tax rate: 1.2%
- Annual tax: $3,600 ($300/month)
Tax rates vary significantly by location—from 0.3% in Hawaii to 2.5% in New Jersey.
2Assessments and Appeals
Understanding assessed value:
If you disagree:
- Assessment: County's estimate of your home's value
- Usually below market value in many areas
- Reassessed periodically (varies by state)
If you disagree:
- Review your property record for errors
- Compare to similar properties
- File a formal appeal (deadlines apply)
3Tax Escrow Explained
How escrow works:
Why escrow? Protects the lender by ensuring taxes are paid (unpaid taxes = liens on property).
- Lender collects 1/12 of annual taxes monthly
- Funds held in escrow account
- Lender pays tax bill when due
- Escrow is analyzed annually
Why escrow? Protects the lender by ensuring taxes are paid (unpaid taxes = liens on property).
Pro Tips
- Ask for the seller's recent tax bills during purchase
- New construction may have lower taxes initially
- Homestead exemptions can reduce your tax bill
- Property taxes can increase annually—budget accordingly