Property Tax Overview
Property taxes are a form of general taxation required by most local governments. Property taxes are a tax imposed on ownership of real estate, which includes land and buildings. Property taxes are based on the value of the property and are collected annually or semi-annually by local governments or other taxing authorities. In the United States, property taxes are the largest source of revenue for most state and local governments.
In general, property taxes are based on the assessed value of the property. This value is determined by assessing the market value of the property and then multiplying that value by an assessed rate set by the local taxing authority. Generally, the assessed rate cannot be higher than 100%, and, in many states, all properties are assessed at the same rate, though different or separate rates may be applied to different classes of property, such as single-family homes, multi-family dwellings, or businesses. In some states, homeowners are allowed to reduce their assessed value by a predetermined percentage of their homestead exemption.
Most property tax systems also allow for tax exemptions, abatements, and credits that reduce the amount of tax due. These exemptions, abatements, and credits may be available for senior citizens, for homeowners, for veterans, for disabled persons, and for those who have lived in a property for a certain length of time. Many states and regions also have homestead exemptions that reduce the value of a homeowner’s property for the purpose of taxation.
Because the property taxes that most local jurisdictions impose are usually based on value, rather than on income, property taxes are considered to be very stable sources of revenue. They are less subject to the economic fluctuations that can affect income taxes, and they are also less prone to manipulation. Property taxes are also relatively easy to collect, as they are imposed directly on the owner of a property.
Property taxes are sometimes controversial, however, because they can place a significant burden on homeowners and property owners. In some cases, the burden of property taxes may cause people to sell their homes and move to a less expensive area. For this reason, local governments should take care to consider the impact of their property tax policies before making any changes. For example, some states have adopted caps on increases in property tax revenue, which help prevent property taxes from becoming overly burdensome for homeowners.
Furthermore, there have been attempts in some countries to shift the burden of local services from property taxes to other revenue sources, such as sales taxes or income taxes. In the United States, for example, some local governments have adopted measures such as devoting a percentage of state sales tax revenues to local projects, or providing tax credits for homeowners.
