Property tax basics: how it’s calculated, when to appeal, and what changes it

Your property tax bill is the second-largest line item in homeownership after the mortgage itself, and it’s the one most owners understand the least. The good news: the math is simple. The bad news: the bill changes every year, and there are real dollars to be saved by knowing which exemptions to file and when to appeal.

How the bill is calculated

Every property tax bill in the U.S. comes down to the same formula:

Assessed value × tax rate = annual property tax

That’s it. Everything else is just figuring out those two numbers and which exemptions reduce them.

Assessed value

This is what your county tax assessor says your property is worth. It is not the same as market value (what it would sell for) or appraised value (what a bank-ordered appraiser says).

Most jurisdictions use an assessment ratio — a fixed percentage of market value. Examples:

• Some counties assess at 100% of market value (most of TX, CA at purchase)
• Others assess at 80–90% (parts of GA, SC)
• A few use much lower ratios with offsetting higher rates

You’ll get an annual or biennial assessment notice in the mail. Read it. The number on it drives your bill.

Tax rate (millage)

The rate is set by overlapping jurisdictions: school district, county, city, and special districts (fire, library, water, hospital). They each levy their own piece, and the combined rate is what you actually pay.

Rates are expressed two ways:

• Mills: 1 mill = $1 per $1,000 of assessed value. A 25-mill rate = 2.5% of assessed value.
• Percentage: same thing, just easier. Combined rates typically run 0.5%–2.5% of assessed value, varying wildly by state.

Low-tax states: HI, AL, CO, LA (often <0.6%). High-tax states: NJ, IL, NH, CT, TX (often 1.8%+). Within a state, rates vary by district.

Concrete example

You buy a $500,000 home in a state with a 90% assessment ratio.

• Assessed value: $500,000 × 0.90 = $450,000
• Combined tax rate: 1.4%
• Annual property tax: $450,000 × 0.014 = $6,300/yr
• Monthly escrow: $525/mo

That $525 is sitting on top of your principal and interest every month. Run the full payment in the Mortgage Calculator so it doesn’t surprise you.

Why your bill changes every year

Even on a fixed-rate mortgage, your property tax bill (and therefore your escrow payment) moves around. Three reasons:

Reassessment

Most jurisdictions reassess annually or every 2–5 years. When the market goes up, assessed values follow. A hot market = double-digit assessment increases.

Caps on annual increases

Some states protect existing owners from runaway reassessment:

• California (Prop 13): 1% cap on the base tax RATE plus a 2% annual cap on assessed value increase — until a change in ownership, then it resets to current market value (typically purchase price). Voter-approved bonds (school, infrastructure) and Mello-Roos special assessments stack ON TOP of the 1%, so the effective rate is usually 1.1–1.3%.
• California (Prop 19, effective Feb 2021): largely killed the parent-to-child reassessment exclusion. Inherited property is now reassessed to current market value UNLESS the heir uses it as their primary residence within 1 year AND the home’s value is within $1M (indexed) of the parent’s assessed value. Investment and vacation property inherited from a parent gets reassessed, full stop. This is a major estate planning shift — long-held CA rental portfolios with massive Prop 13 baselines now face reassessment at death.
• Florida (Save Our Homes): 3% (or CPI, whichever is lower) cap on assessed value increases for homesteaded primary residences. The homestead exemption itself is $50,000 ($25k applied to all taxes, another $25k applied to non-school taxes on assessed value above $50k). Save Our Homes savings are portable to a new FL homestead within 3 tax years.
• Texas: 10% homestead cap on assessed value year-over-year (the “10% cap” or “cap loss”). General homestead exemption is currently $100,000 off school district taxable value (raised in 2023).

These caps are why a long-time owner pays a fraction of what their new neighbor pays for an identical house.

New millage rates

Voters approve school bonds, fire levies, and library funding all the time. Each one bumps the combined rate. Show up at local elections if this matters to you — turnout is low and small groups decide big numbers.

The year-1 reassessment trap (CA, FL, and others)

Here’s the surprise that catches first-time buyers in California, Florida, and similar states: when a property sells, the assessed value resets to the purchase price.

If the prior owner had owned for 20 years under Prop 13 and was paying tax on a $200,000 assessed value, and you just bought for $1.2M, your tax bill is going to roughly 6x what their bill was.

The Zillow estimate showing the prior owner’s tax amount is worthless. Always model your tax based on purchase price × local rate, not the seller’s historical bill.

In CA you’ll also get one or two supplemental tax bills — separate one-time bills covering the difference between the prior owner’s pro-rata tax and your new tax for the partial year of purchase (and, if you close between January and May, a second supplemental for the next fiscal year). These bills are not in your escrow — lenders typically refuse to pay supplementals. Budget $2,000–$10,000+ separately in year 1 depending on purchase price and assessment delta.

Exemptions to apply for after closing

This is the lowest-effort, highest-ROI move in homeownership. Most buyers don’t do it.

Homestead exemption

Available in most states for your primary residence. Reduces assessed value (e.g., $50k off in FL, $100k off school taxable value in TX as of the 2023 increase, varies elsewhere). Typical savings: $500–$3,000/yr, every year you own. In FL, homestead also activates the Save Our Homes 3% cap, which compounds into tens of thousands of savings over a decade in a hot market.

The catch: you must apply, usually in year 1 of ownership, with deadlines often in March or April (FL: March 1; TX: April 30 with a late-filing grace period). Miss it and you wait a year.

A homestead exemption requires the home to be your primary residence — not a second home or rental. Claiming homestead in two states simultaneously is fraud and is increasingly cross-checked.

Other common exemptions

• Senior exemption (usually 65+): often substantial
• Veteran exemption: full or partial in many states
• Disability exemption: varies by state
• Religious / charitable: for qualifying organizations
• Agricultural / open space: rural land

Check your county assessor’s website. Forms are usually 1–2 pages. Bring proof of residency (driver’s license matching the property address is the universal one).

Appealing your assessment

If the assessor’s number looks high, you can fight it. Win rates of 30–50% are typical when you have real evidence.

When it’s worth appealing

• Assessment is >5–10% above what comparable recent sales support
• The square footage on record is wrong (and too high)
• The condition is materially worse than assumed (foundation, storm damage, deferred maintenance)
• Your neighbors with identical homes are assessed lower

How the process works

1. Window opens when assessment notice arrives. You typically have 30–90 days to file. Miss it, wait a year.
2. File the appeal form. Usually free, sometimes $25–$100.
3. Gather evidence: 3–5 recent comparable sales below your assessment, photos of any damage or condition issues, a private appraisal if the disagreement is large.
4. Informal review with an assessor staffer. Many appeals resolve here.
5. Formal Board of Equalization hearing if the informal fails. Show up with organized evidence. 10 minutes, low drama.
6. Court if the board says no and you really care. Rare.

If you’d rather pay someone, property tax consultants work on contingency (typically 30–50% of year-1 savings). Worth it if your bill is >$10k/yr and the case is strong.

Federal deductibility (SALT cap)

Property tax on your primary residence and second home is deductible on Schedule A — but only if you itemize, and only as part of the combined state and local tax (SALT) cap.

• The SALT cap is $10,000 ($5,000 if MFS) for property tax PLUS state/local income or sales tax combined. Set by the 2017 TCJA.
• Status: scheduled to expire after 2025 unless Congress extends. As of this writing the cap remains in force; check current law before relying on a higher deduction.
• For high-tax states (NY, NJ, CA, CT, IL), this cap regularly eliminates most of the federal benefit of property tax. Many homeowners who itemized pre-2018 now take the standard deduction.
• Property tax on a rental property is fully deductible against rental income on Schedule E and is NOT subject to the SALT cap. This is a meaningful planning point for owners with both.
• Many states (NY, CA, NJ, CT and others) have enacted PTET (pass-through entity tax) workarounds that let owners of rental property held in pass-throughs sidestep the SALT cap on the entity side. Worth a CPA conversation if you own rentals in an LLC.

Escrow vs paying directly

For most loans with <20% equity, the lender requires an escrow (impound) account — they collect 1/12th of your annual property tax with each payment, hold the cash, and pay the bill when due.

Pros of escrow:

• Spreads a big bill across 12 months
• Lender ensures on-time payment (no late penalties)
• One less thing to forget

Cons:

• Lender holds 1–2 months of cushion, earning you nothing
• Your monthly payment changes annually as bills change
• Surprise shortfalls after reassessment

For more on the mechanics, see the escrow accounts guide.

Common mistakes

• Not filing for homestead exemption in year 1. Easy money, often missed. Set a calendar reminder for the filing deadline.
• Modeling your bill off the prior owner’s tax in CA/FL. Your tax resets at purchase price. Use purchase price × local rate.
• Not budgeting for the supplemental bill. In CA especially, expect a separate bill in year 1 that’s not in your escrow.
• Not appealing an obviously high assessment. Even a small reduction compounds for as long as you own the house.
• Assuming your escrow payment is fixed. It changes every year with the annual escrow analysis. A reassessment + insurance hike can move your monthly payment $100–$300 in a single year.

Tools you’ll use

• Affordability calculator — includes property tax in the monthly payment
• Mortgage Calculator — full PITI with tax and insurance
• Closing Cost Estimator — includes initial escrow deposit
• HOA Analysis — if you’re also paying HOA dues alongside taxes

Related: Escrow accounts, Homeowners insurance basics, Decoding your mortgage statement.