Property taxes are often the most confusing — and frustrating — cost of homeownership. They seem to go up every year, and most homeowners don't understand how they're calculated or that they can fight back. Here's everything you need to know about how property taxes work in the US.
How Property Taxes Are Calculated
The formula is straightforward:
Property Tax = Assessed Value × Tax Rate (Mill Rate)
But understanding each component is where it gets complicated:
- Assessed value: Your local assessor's estimate of your property's market value. In some states, the assessed value is a percentage of market value (e.g., 40% in Georgia).
- Tax rate (mill rate): Set by your local government (county, city, school district). Expressed as mills (1 mill = $1 per $1,000 of assessed value) or as a percentage.
Example Calculation
- Home market value: $350,000
- Assessment ratio: 100% (varies by state)
- Assessed value: $350,000
- Mill rate: 32 mills (3.2%)
- Annual property tax: $350,000 × 0.032 = $11,200
Where Does Your Property Tax Money Go?
Property taxes fund essential local services. A typical breakdown:
- Public schools: 45–55% (the single largest portion)
- County services: 15–20% (roads, parks, courts, public health)
- Municipal services: 15–20% (police, fire, water, sewer, trash)
- Special districts: 5–10% (libraries, flood control, transit)
- Other: 5% (community colleges, hospital districts)
This is why areas with excellent schools tend to have higher property taxes — and why taxes vary block by block across different school district boundaries.
Why Do Property Taxes Keep Going Up?
If it feels like your property taxes increase every year, you're not imagining it. Here's why:
- Rising home values. When home prices increase, so does your assessed value. In markets that saw 20–30% appreciation, property taxes surged proportionally.
- Local budget increases. As schools, police, and infrastructure costs rise, municipalities raise the mill rate.
- Reassessment cycles. Most counties reassess property values every 1–5 years. If you haven't been reassessed recently, a big jump may be coming.
- Loss of exemptions. If your homestead exemption, senior exemption, or other tax break expires or you move, your effective tax rate jumps.
- New bond measures. Voter-approved bonds for schools, roads, or parks add temporary surcharges to your tax bill.
Property Tax Rates by State
Effective property tax rates vary dramatically across the US:
| Category | States | Effective Rate | Annual Tax on $350K Home |
|---|---|---|---|
| Lowest | Hawaii, Alabama, Louisiana, Wyoming | 0.27%–0.55% | $945–$1,925 |
| Below average | Colorado, Tennessee, Arkansas, West Virginia | 0.51%–0.68% | $1,785–$2,380 |
| Average | Florida, California, Georgia, Indiana | 0.73%–0.89% | $2,555–$3,115 |
| Above average | Texas, New York, Michigan, Ohio | 1.59%–1.80% | $5,565–$6,300 |
| Highest | New Jersey, Connecticut, Illinois, New Hampshire | 2.15%–2.47% | $7,525–$8,645 |
6 Ways to Lower Your Property Taxes
- Challenge your assessment. If your home is assessed higher than comparable recent sales, file an appeal. Over 30% of appeals result in a reduction. Gather 3–5 recent comparable sales to support your case.
- Apply for exemptions. Homestead exemptions ($25,000–$75,000 in reduced assessed value), senior exemptions, veteran exemptions, and disability exemptions can save $500–$3,000/year.
- Check for errors. Assessor records sometimes contain mistakes — wrong square footage, extra bedrooms, or a finished basement that's actually unfinished. Review your property card.
- Don't over-improve. Major additions (pools, extra rooms) trigger reassessment. Cosmetic renovations (paint, fixtures) generally don't.
- Attend budget hearings. Local governments must hold public hearings before raising tax rates. Organized community pushback can affect outcomes.
- Consider location when buying. Two homes on the same street can have different tax rates if they're in different school districts or municipalities. Ask about taxes before buying.
Factor Taxes Into Your Home Buying Decision
Property taxes are a permanent cost of homeownership that never goes away — even after your mortgage is paid off. Use our Cost of Living Calculator to compare total housing costs (including taxes) across different locations. Read our guide on the true cost of homeownership to see how property taxes fit into the complete picture.