For many people, an important but often overlooked part of the purchasing decision is property tax.
In some areas, just crossing the street from one municipality to another can have a major impact. For example, the difference between two municipalities with effective tax rates of 7.53% versus 1.63%, can be the difference of more than $12,000, annually, on a home with an assessed value of $250,000.
How do I calculate property tax?
Most states use the following equation:
Fair Market Value x Assessment Ratio x Millage Rate = Effective Property Tax
- The Fair Market Value of the home can be calculated by any number of methods, but really amounts to what the property would sell for if you placed it on the open market.
- The Assessment Ratio is set by and varies considerably by state. This ratio can be anywhere from 10 to 100% of a property’s Fair Market Value.
- The Millage Rate is determined by the municipality as a fair distribution of the cost of that municipality among every real and personal property owner, or the annual budget divided by the value of all taxable property within the jurisdiction.
Once you have these numbers, you can begin to understand the difference between what it will cost to live in one town versus another.
Can I compare property taxes online?
Yes, you can. But, unfortunately, most tax calculators are very general and often inaccurate.
Use something more specific, like See Through NY, or NJ Tax Appeal (requires block and lot), or the resources from CT's Office of Policy and Management to calculate what you can expect to spend annually on property taxes.
For additional help understanding tax implications of home ownership, you can always contact us, or refer to a local tax professional.