But the thing with taxes is that they can be very different from one year to another, and the ways how local governments charge these cost is often perplexing. As a result, people are too many times confused and worried about paying more than they are supposed to.
For avoiding this situation, it is critical to understand how is your local property tax calculated, and we intend to help you get there with this text.
What is a Property Tax?
We believe that many people know it already, but just in case make it clear, a property tax is a tax that you need to pay each year if you own a real estate or some other property. Generally speaking, it is based on the location and the value of the property. You will often hear that this tax is called ad valorem, which is a Latin expression to explain that something is proportionate to the value of goods.
How is it Calculated?
Roughly speaking, we can say that property tax is calculated by multiplying tax rates with the value of the property. It probably doesn’t mean anything to a lot of people, and if you are one of them, you can help yourself by using some of the tools available online like capital gains tax on property calculator to figure out how much you need to pay.
We will explain here in more details on how local governments calculate local property tax.
First, a person needs to assess the value of your property. This person is called an assessor. She or he will come and compare the value of your property with similar others that have been sold in your area. Then based on the state of your house, they will add or subtract from the assessed value. For example, if you are a proud, smart homeowner, this will increase the value of your property.
Another way to make an assessment is to look into how much it would cost to build the house all over again, materials, and people’s work included. After that, they will add the value of the land, which is based on the value of the land plus the worth of property built previously on it.
There is one more way called the property income tax method. It is not so much used for the private property but more for businesses. The assessor makes an estimate of the profit you would gain if you rented the property. While doing this, they include different factors like insurance, maintenance costs, and others.
To determine how much is the property tax after the assessment is made, this found value is as we mentioned multiplied with the tax rate determined by local authorities. It is called millage or mill rate, and it comes from Latin the word millennium, which means one of the thousand (1/1000). In simple terms, it means that it is one-tenth of one cent at $1000.
Let’s see how it would look like in reality. Say, for example, that your house is worth $150,000 and the land $75,0000. The total value of your property is $225,000. Now, let’s imagine that the tax rate 25. To calculate property tax, you need to multiply $225,000 with 2.5%. The amount that you need to pay is $5,625 per year.
Selling the Property
If you decide to sell your home, you have to get informed on capital gain tax on the sale of the property. It is a tax on the profit that you made by selling property. But it is essential to know that it doesn’t include only real estate but also bonds, stocks, gold, and other precious metals and so on.
We will explain how to calculate capital gains tax on property with the free mobile app. The main thing is to figure out the profit that you gained by selling the property. It would be best if you found the difference between what you invested and what you made from sales. Then depending on this, the tax on capital gain will be from 0% to 20%.
As you can see, it is not so complicated to understand how much you need to give for property tax. However, we realize that it is easy to get lost in all these numbers, mainly because there is always a bunch of things we need to pay over the year. We hope that this text was helpful and that you feel more confident to rely on yourself to make the calculation. What are your experiences with paying property taxes? Have you thought about this before?