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

Related To:

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

5 Types of Neighbors and How to Handle Them

You may love your house, but getting stuck with bad neighbors may have you thinking about putting up a for-sale sign. Here are some tips on dealing with rude, sloppy or nosy neighbors, and even those mean ones with spite houses.

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.

Saving Money While Paying for a Home

You may be financially "exhausted" from saving for your home purchase, but now's actually a great time to keep saving.

What Foreclosure Means and How to Stop It From Happening

Learn about the various steps in the foreclosure process and ways you can avoid losing your home.

Short Sale Rules: What You Need to Know

A short sale occurs when a property is sold for less than what is owed on the mortgage with the lender's approval. Learn the advantages and disadvantages of this type of transaction for the seller and the buyer.

The Skinny on the Short Sale

How to get a short sale when you're facing foreclosure on a house.

Scheduling Your Relocation

If you can postpone your move, you could save some major cash.

Moving Day Tips: How to Pack for a Move

These 10 packing tips will help you move more efficiently and smoothly.

Did I Accept a Bad Offer on My Home?

Worried you accepted a bad offer for your home? Let real estate expert soothe your fears.

How to Quickly Sell Your Home When Threatened With Foreclosure

Get tips and advice on how to sell your home fast.

Go Shopping

Get product recommendations from HGTV editors, plus can’t-miss sales and deals.

On TV

Follow Us Everywhere

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