Property Tax
Definition
An annual tax levied by local governments on real property based on its assessed value, funding schools, infrastructure, emergency services, and other municipal functions.
Property taxes are the primary funding mechanism for local governments in the US. Your annual property tax bill is calculated as: assessed property value times the local tax rate (mill rate). If your home is assessed at $300,000 and the rate is 1.5%, you owe $4,500 annually.
Tax rates vary dramatically by location. New Jersey has the highest effective rate (~2.2%), while Hawaii has the lowest (~0.3%). Within states, rates vary by county and municipality. A $400,000 home might generate $2,000/year in property taxes in one location and $10,000 in another — a difference that significantly affects housing affordability.
Property taxes are typically paid through mortgage escrow — your lender collects 1/12 of the annual tax with each monthly payment and pays the tax bill on your behalf. After the mortgage is paid off, you're responsible for paying property taxes directly, usually in two semi-annual installments.
Assessment appeals are an underused money-saving opportunity. If your assessed value is higher than your home's actual market value, you can appeal with comparable sales data. Success rates vary, but many homeowners save hundreds or thousands annually through successful appeals.
Property tax deductions are limited to $10,000 total for state and local taxes (SALT) on federal returns since the 2017 Tax Cuts and Jobs Act. This cap particularly affects homeowners in high-tax states like New York, New Jersey, and California, where property taxes alone can exceed the $10,000 limit.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
Can I reduce my property taxes?
You can appeal your property assessment if it's higher than market value — many assessments are outdated or inaccurate. Check for exemptions you qualify for (homestead, senior, veteran, disability). Some states offer property tax caps or freezes for seniors. Moving to a lower-tax area is the most drastic option.
Are property taxes deductible?
Yes, but subject to the $10,000 SALT cap (combined with state income taxes). If your property taxes alone exceed $10,000, you can only deduct $10,000 total. This cap makes the deduction less valuable for homeowners in high-tax states. The limitation expires after 2025 unless extended by Congress.