Understanding Property Taxes and Assessments

Homeowners have to pay property taxes. Before you buy, know how your local property taxes and special assessments will impact your cost of ownership.
By: Tara-Nicholle Nelson

One thing’s for sure: homeownership is more complicated than renting. When you rent, you pay first and last months’ rent, the security deposit and you move in. When you own a home, your costs are a little more complex. Above and beyond the mortgage payment, you have to consider property taxes and assessments to get a true picture of what homeownership actually costs. Understanding each of these expenses empowers you to accurately predict and control what your monthly expenses will be once you own your home.

Property taxes. Every year, the city, county and state charge taxes on every parcel of real estate located within their borders. For many homeowners, these property taxes are the second largest expense of owning a home (after mortgage interest). In most areas, property taxes are governed by state law, but assessed and collected by the county on an ad valorem basis (ad valorem is Latin for “according to value”). They are calculated annually by applying a certain tax rate to the assessed value of the property.

Direct assessments. Unlike ad valorem property taxes, bonds and direct assessments are flat fees imposed on each parcel of real estate in an area after a city- or district-wide vote, in order to fund various services for that area not covered (or insufficiently funded) by property tax revenue. Some of the public projects commonly funded by bonds and direct assessments are:

  • street landscaping and lighting
  • public transporation
  • library services
  • vector control (i.e., pest control)
  • parks and recreation
  • violence prevention and increased police presence
  • local schools

Special assessments. In recent times, many cities have required subdivision developers to build and ensure long-term funding for the parks, schools and emergency services that will directly benefit their subdivision to prevent the influx of new homes from causing a drain on existing municipal services. These dedicated services, which may be located within the subdivision but are often made available to all area residents, are funded in the long-term by special assessments.

When considering a particular home, research the ad valorem tax rate and any bonds or assessments that may apply to that property by visiting the county assessor’s Web site and searching for tax records for that particular property address. The current tax year’s data is also usually disclosed from seller to buyer during escrow. This will allow you to plan your monthly budget and ensure you can handle the true, total costs of ownership -- beyond just the mortgage payment.

NOTE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

Next Up

Calculating Your Property Tax Bill

The tax amount you see on a listing might have nothing to do with how much your property tax bill will be after you buy the home. Here's how to crunch the numbers.

Understanding the Pre-Approval Process

Before loan shopping, you should first understand the difference between "pre-approval" and "pre-qualification". Neither will guarantee you a loan, but these tips will help you get closer to buying a house.

Tax Breaks for Homeowners

A huge benefit of being a homeowner is the ability to take advantage of a number of tax breaks. Check out the possibilities.

Tax Deductions for First-Year Home Owners

Deduct money paid towards mortgage points or origination fees.

Building Mortgage Interest: More Tax Deductions and Incentives for Homeowners

Learn about the many tax advantages of homeownership, including special deductions and local incentives.

Campus Cribs: Buying Real Estate Property for Your College Student

Buying a space for your student could turn out to be a great investment.

Are You Financially Ready to Buy an Investment Property?

Here's what you need to consider in this real estate market before shelling out for an investment property.

Remodel Your Way to Tax Deductions

Make sure to do value-enhancing projects, and hold on to those receipts.

Get Tax Relief After a Natural Disaster, Theft

When damage occurs, here's what homeowners need to know to start over.

Stories We're Following

Shop This Look

Found a living space you love in HGTV's Photo Library? Get the look in your own home with products from Wayfair.

Follow Us Everywhere

Join the party! Don't miss HGTV in your favorite social media feeds.