What are property taxes?

Property taxes are levied by local governments — typically counties or municipalities — on the assessed value of real property (land and structures). The tax you owe equals your property's assessed value multiplied by the local mill rate (or tax rate). Rates vary widely from under 0.3% in some states to over 2% in others. Unlike federal income taxes, property taxes have no single national rate — your local assessor's office determines your bill.

How your bill is calculated

The calculation follows three steps: (1) the assessor determines your property's assessed value (which may differ from market value); (2) any applicable exemptions (homestead, senior, veteran) are subtracted; (3) the resulting taxable value is multiplied by the local mill rate. One mill = $1 of tax per $1,000 of taxable value. The IRS explains how property taxes may be deductible on federal returns, subject to the $10,000 SALT cap for individuals who itemize.

• Property taxes are set locally — rates vary by county, city, and school district.
• Assessed value is determined by your local assessor, not necessarily your market value.
• If your mortgage has an escrow account, your lender collects property tax monthly and pays the tax authority on your behalf.
• Failing to pay property taxes can lead to a tax lien — and eventually a tax sale — on your home.
• Most jurisdictions allow you to appeal your assessed value if you believe it's too high.

Property taxes and your mortgage escrow

Most lenders require an escrow account for borrowers with conventional loans below 20% down, and for all FHA/VA loans. Each month, your lender collects roughly 1/12 of your annual property tax (plus homeowners insurance) and holds it in escrow. When the tax bill comes due, the lender pays it directly. The CFPB's guide to escrow accounts explains how the account is managed and why your monthly payment may change year to year.

Federal deductibility

Under current federal law, individual homeowners who itemize deductions can deduct state and local taxes — including property taxes — up to a combined $10,000 cap (the SALT deduction limit). Taxpayers who take the standard deduction receive no direct federal tax benefit from property taxes. Business property taxes follow different rules and are generally fully deductible as a business expense. See IRS Topic 503.