Property Tax

Key takeaways

• Property tax is an ad valorem tax based on the assessed value of real estate (and in some jurisdictions, tangible personal property).
• It is the primary source of local government revenue in the U.S., funding schools, public safety, roads, libraries, and utilities.
• Rates and rules vary widely by state and locality; the tax is generally considered regressive.
• Homeowners can appeal assessments; unpaid taxes can result in liens.

What is property tax?

Property tax is a recurring charge levied by local governments on property owners. Most commonly it applies to immovable property—land and buildings—but many jurisdictions also tax tangible personal property such as vehicles or business equipment. The tax is ad valorem, meaning it is calculated as a percentage of the property’s assessed value.

How property taxes are used

Property tax revenue funds local services that directly affect communities, including:
* Public schools
* Police and fire departments
* Road construction and maintenance
* Libraries and parks
* Water, sewer, and other municipal services

How property taxes are calculated

1. Determine market value: A tax assessor estimates the property’s fair market value.
2. Establish assessed value: The assessor or local rules may apply a fraction or adjustment to arrive at an assessed value.
3. Apply the tax rate: The tax bill = assessed value × tax rate (often expressed as a mill rate or percentage). Taxing authorities typically update rates annually.

Example: If an assessed value is $200,000 and the tax rate is 1.5%, the annual tax is $3,000.

Assessment process and appeals

Local governments appoint or elect assessors to value properties. Property owners usually have the right to:
* Review their assessment
* File a formal appeal or protest if they believe the value is incorrect

If property taxes go unpaid, the taxing authority can place a lien on the property and, in many cases, initiate foreclosure or sell a tax lien.

Property tax vs. real estate tax

The terms are often used interchangeably, but:
* Real estate tax refers specifically to taxes on real property (land and buildings).
* Property tax can include real property and tangible personal property (e.g., business equipment, some vehicles).
Both types may be deductible on federal returns, but since the Tax Cuts and Jobs Act of 2017 the deduction for state and local taxes (SALT), including property tax, is capped at $10,000 per year for most filers.

Who pays and distributional effects

Property taxes are levied on property owners—individuals and legal entities (including corporations). They do not apply to renters directly (though landlords may pass costs to tenants through higher rents). Because the same rate applies regardless of owner income, property tax is often described as regressive: lower-income households spend a larger share of income on property taxes than higher-income households.

Why U.S. property taxes vary and can be high

Factors that drive variation and higher property tax burdens in the U.S. include:
* Reliance on property tax for local government revenue
* High home values in some areas
* Differences in local government spending needs
* Classification and assessment rules that vary by jurisdiction

Examples of high property-tax places

Some cities and states have comparatively high effective property-tax rates (percentage of home value). Examples reported in studies include cities such as Rockford, IL and Waterbury, CT, and states like Connecticut, New York, and Illinois, where average effective rates can be around 3% of home value.

The bottom line

Property tax is a fundamental local tax based on property value that funds essential community services. Rates, assessment methods, and which items are taxed vary widely by jurisdiction. Property owners should understand their assessment, know how to appeal if necessary, and consider the impact of local property-tax levels when buying or owning property.