Property tax is a recurring fee imposed by local governments on the value of real estate or tangible assets owned by a business, which is used to fund public services and infrastructure.
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Property tax is a tax levied on property that an individual or legal entity owns. The tax rates vary based on the location and type of property. Let’s take an in-depth look at the definition of property tax.
The property tax meaning is fairly self-explanatory: it’s a tax on property that you own. And it’s important to note that property taxes aren’t limited to just real property, like land and buildings. Some jurisdictions also tax other tangible personal property, such as cars, boats, and trailers. Property taxes are a type of “ad valorem tax,” meaning they’re generally based on the value of the property that’s being taxed.
States, counties, and cities impose these taxes. Property tax benefits the government, and through the government, these taxes ultimately benefit the public. The money paid in property taxes helps fund public schools, water and sewer treatment facilities, police departments, libraries, infrastructure, and other governmental services available to members of the community.
Both individuals and businesses pay property taxes, depending on who owns the property. Failure to pay property taxes can result in a lien against the property.
The property tax definition may seem straightforward, but when it comes to estimating the taxes, things can get tricky. To calculate an estimate of your property taxes, multiply the property tax rate by the property’s current market value. To gain a better understanding of how this works, let’s talk more about these two important factors: tax rates and property values.
Tax rates vary greatly by state and the property type involved. Most jurisdictions recalculate the tax rates annually. To know the current property tax rate, check with the county or city government where the property is located.
And if you’re not aware of the current market value of your property, the local government’s tax assessor is responsible for estimating that value. So if you want to properly estimate what your property taxes will cost, reach out to your city or county government to discover the current tax rate, then contact your tax assessor to get a market value on your home. Once you’ve got those numbers, you’ll be able to get a good idea of what your property taxes will be.
The formula to estimate property taxes is (current market value) x (tax rate). If you own property worth $350,000 and the county’s property tax rate is 2.5%, you will owe around $8,750. Now keep in mind that there are some tax exemptions, like the homestead exemption, that can reduce the amount of property taxes you owe for a home you occupy. This can be beneficial for business owners who run their companies out of their primary residence.
If you own a piece of property — whether it’s land or a company van — you may have to pay property taxes on it. Before purchasing any property, familiarize yourself with the local property taxes that apply. It may impact your decision to purchase the property.
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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Written by Team ZenBusiness
ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.
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