How property taxes are calculated: the complete guide

Last updated 2026-07-09

What is the basic formula for calculating property taxes?

Property tax has one formula: multiply your property's assessed value by the tax rate, then subtract any exemptions. Written out:

Property Tax = (Assessed Value x Tax Rate) - Exemptions

Every state uses some version of this. The complexity lives inside each variable, not in the formula itself.

Tax rates come as a percentage of assessed value or as mills. One mill is $1 per $1,000 of assessed value. A rate of 20 mills equals 2%. A home assessed at $400,000 with a 20-mill rate owes $8,000 before exemptions. Simple math, surprisingly abused.

The assessed value is where most homeowners get burned. Assessors don't always use full market value as the base. Many states apply an "assessment ratio" that sets assessed value at a fraction of market value. Illinois targets a 33.33% assessment ratio in most counties ^[1]. So a $300,000 home carries an assessed value of roughly $100,000 before the tax rate touches it. The rate looks high on paper. The base absorbs the difference.

This distinction matters the moment you compare rates across states. New Jersey has the highest effective rate in the country at around 2.23% of home value ^[2]. Hawaii sits near 0.32% ^[2]. Neither number means anything until you know what base is being taxed.

What does "assessed value" mean and how is it determined?

Assessed value is the number your county assessor assigns to your property for tax purposes. It is not what your home would sell for. The gap between the two depends on your state's rules.

Most assessors use one of three approaches to estimate value ^[3]:

• Sales comparison (market) approach: comparing your home to recent sales of similar nearby properties. This is the usual method for houses.
• Cost approach: estimating what it would cost to rebuild the structure, plus land value, minus depreciation. Common for newer construction and unusual properties.
• Income approach: capitalized rental income. The default for commercial and income-producing property, not typical single-family homes.

After estimating market value, the assessor applies your state's assessment ratio to get the assessed value. A few states (California, Florida, and others) add another layer by capping how fast assessed value can grow each year. That means your assessed value can drift well below market value after years of ownership.

Here's how assessors actually do this work at scale: mass appraisal. Nobody is walking through your house every year. They're running statistical models on neighborhood sales, permit records, and building characteristics ^[3]. Models miss things. A basement that was never finished. A cracked foundation. A highway roaring behind the fence. That's the root of most overassessments.

How is the property tax rate (mill rate) set each year?

Local governments set the rate through an annual budget process. The school district, county, city, and special districts each pass a budget. The total they need from property taxes gets divided by the total assessed value of all taxable property in the jurisdiction. The result is the mill rate ^[4].

That mechanism means your rate can rise even when your assessed value stays flat. If the county needs more money and the tax base doesn't grow, the rate goes up. The reverse also holds. A fast-growing community with a rising tax base can cut rates and still fund the same services.

Your bill usually shows several line items, each from a different taxing jurisdiction. A homeowner in suburban Texas might see separate charges from the county, the city, the school district, a municipal utility district, and a community college district. All of them use your assessed value as the base. Each applies its own rate. The bill totals them.

The combined rate is what matters. Across most of the country, combined effective rates on residential property run from about 0.3% to 2.5% of market value ^[2]. Your jurisdiction's rate is public record, posted on your county assessor or auditor website.

How is calculating property tax in California different from other states?

California has its own universe. Proposition 13, passed by voters in 1978, caps the general property tax at 1% of the purchase price (plus voter-approved bonds and assessments that usually add 0.1% to 0.4%) and limits annual increases in assessed value to no more than 2% per year ^[5].

The result: calculating property tax in California starts with your acquisition value, not current market value. Buy a house today for $800,000, and your base assessed value is $800,000. Next year it can rise at most 2%, whatever the market does. A neighbor who bought the identical house in 1995 for $280,000 has a current assessed value capped around $560,000 (roughly 28 years of 2% compounding), even if both homes would sell for $1.2 million today.

Section 2 of Proposition 13 puts it plainly: "the full cash value base may reflect from year to year the inflationary rate not to exceed 2 percent for any given year" ^[5]. That single sentence explains the huge gap in tax bills between longtime owners and new buyers on the same street.

To calculate California property tax on a new purchase:

1. Start with the purchase price (your base year value). 2. Add any taxable new construction value. 3. Apply the 1% general levy. 4. Add local voter-approved bonds and assessments (your county's tax rate area schedule lists these; in many parts of Los Angeles and Santa Clara County they add 0.25% to 0.40%) ^[7].

Calculating California property tax also means watching for Prop 19 triggers. Since February 2021, a parent can transfer a primary residence to a child without full reassessment only if the child moves in and uses it as a primary residence, and the exclusion caps at $1 million above the assessed value ^[8]. Miss that, and the property gets reassessed at market value on transfer.

If you own property in LA County, our guide to la county property tax breaks down rates by tax rate area. Santa Clara County, home to the Silicon Valley cities, has its own quirks covered in our santa clara property tax guide.

The property tax protest California process is separate from the calculation, but it starts here. If your assessed value sits above what you paid (which can happen after a market decline), or if the assessor botched your base year value, you can file an Assessment Appeal Application with your county's Assessment Appeals Board. California counties have filing windows, most commonly July 2 through September 15 for regular appeals ^[5].

How do property tax exemptions reduce your bill?

Exemptions cut the taxable assessed value before the rate applies, so the savings scale with your local rate. A $50,000 homestead exemption in a 2% jurisdiction saves $1,000 a year. The same exemption in a 0.5% jurisdiction saves $250.

The homestead exemption is the most widely available. It applies to your primary residence and reduces assessed value by a fixed dollar amount, a percentage, or both, depending on the state ^[9]. Florida's homestead exemption is $50,000 off assessed value for most homeowners, and it switches on "Save Our Homes" portability, which caps annual assessment increases at 3% or the CPI change, whichever is lower ^[9]. Texas homeowners get a $100,000 homestead exemption from the school district tax base as of 2023 ^[10].

Other common exemptions:

• Senior / over-65 exemptions (extra reductions, sometimes with income limits)
• Disability exemptions
• Veterans and surviving spouse exemptions (some states offer 100% exemptions for certain disabled veterans)
• Agricultural use exemptions (large in rural areas, taxed on productivity value rather than development market value)

Exemptions are not automatic in most states. You apply, usually once, and re-certify only if your status changes. Miss the deadline and you lose real money. Many county assessor websites set deadlines in the January to April range for the current tax year.

What is an effective tax rate and how does it compare across states?

Effective tax rate is your annual property tax bill divided by the market value of your home. It cuts through assessment ratios and varying base definitions to give one comparable number.

Effective Rate = Annual Tax Bill / Market Value

A $500,000 home with a $7,500 tax bill has an effective rate of 1.5%. That's the number to use when you compare tax burdens across states or counties.

The table below shows effective rates from the Lincoln Institute of Land Policy's 50-State Property Tax Comparison Study, 2023 data ^[2]:

State	Effective Rate (owner-occupied homes)
Hawaii	0.32%
Alabama	0.41%
Colorado	0.51%
California	0.75%
National median	~1.02%
Texas	1.63%
Illinois	1.88%
New Jersey	2.23%

Texas trades high property taxes for no state income tax. The trade-off is real, but it hits people differently depending on income. New Jersey stacks high property taxes on top of a state income tax, which is a rougher deal. These are structural policy choices made over decades, not administrative errors.

See how these dynamics play out in specific markets in our guides to nyc property tax, miami dade property taxes, and collin county property tax in the Dallas suburbs.

How do you calculate your estimated property tax before buying a home?

Before you close, you want a tax estimate you can trust for your budget. Here's how to build one yourself, without guessing.

Step 1: Find the property's current assessed value. Public record on the county assessor's website. Search by address.

Step 2: Find the current tax rate for that address. County assessor or tax collector websites publish tax rate area tables. For California addresses, the county auditor-controller publishes these by tax rate area code. For Texas, the county appraisal district publishes rates by taxing entity.

Step 3: Do the math. Multiply assessed value by the combined rate. That gives you the current owner's tax bill.

Step 4: Adjust for your purchase price. This step matters most in acquisition-value and assessment-ratio states. In California, your assessed value resets to your purchase price. In states that reassess annually to market value (most of them), your assessed value will land close to what you pay, sometimes with a one to two year lag before the reassessment catches up.

Step 5: Subtract exemptions you'll qualify for. If you'll live there as a primary residence, apply your state's homestead exemption amount.

Example: a California purchase at $900,000 in a Santa Clara County tax rate area with a total rate of 1.25%:

• Base: $900,000 x 1.25% = $11,250 estimated annual tax before exemptions
• California's homeowner exemption is only $7,000 off assessed value, saving about $70 a year at 1%, so it's mostly symbolic ^[5]
• Estimate: roughly $11,250 a year, or about $938 a month

To check rate tables directly for two Bay Area counties, see contra costa county property tax and san mateo county property tax, both with detailed rate area information.

What causes property tax bills to change year over year?

Four things drive year-over-year changes, and they don't always move together.

1. Assessed value changes. Annual reassessment in most states. In California, capped at 2% unless there's a change of ownership or new construction. In Texas, the appraised value is supposed to track market value every year, which means big swings when home prices surge.

2. Tax rate changes. Rates shift with local budgets. A school bond passing in November often raises rates for the next tax year.

3. Exemption changes. If your exemption status changes (you move out of a homestead, you cross a senior exemption age threshold, you newly file a disability exemption), your bill moves without any rate or value change.

4. Special assessments and fees. Infrastructure districts, lighting districts, and similar special-purpose levies land on property tax bills and can appear or change independently of the general levy.

The least-understood dynamic is the rate adjustment after appeals and corrections. When many homeowners appeal and win reductions in a county, the total assessed value of the tax base falls. If the local government still needs the same total dollars, the rate rises on everyone else. Win your appeal and you shift a sliver of the burden to your neighbors. That's real, though the effect on any single neighbor is usually tiny.

How do you spot an overassessment and what can you do about it?

An overassessment means the assessor put a value on your property higher than its actual market value, or higher than your state's rules allow. Assessment accuracy varies a lot across jurisdictions, and lower-value homes are frequently assessed at higher ratios than higher-value homes in the same county ^[2].

Signs you may be overassessed:

• Your assessed value sits close to or above what similar homes sold for recently in your neighborhood.
• The assessor's records show wrong square footage, the wrong bedroom or bathroom count, or a feature you don't have (a pool, say).
• Your assessed value jumped in a year when your local market was flat or falling.
• Comparable homes near you carry lower assessed values that aren't explained by older purchase dates (in Prop 13 states) or condition differences.

The fix is an assessment appeal. Every state has a formal process. In California, you file with the county Assessment Appeals Board between July 2 and September 15 (in most counties) for the current assessment year ^[5]. In Texas, you file a protest with the Appraisal Review Board by May 15 or 30 days after your notice arrives, whichever is later ^[10].

You don't need a lawyer or a contingency firm for this. The evidence you need, recent comparable sales and a correction to the assessor's property record, is public. At TaxFightBack, we built our DIY appeal kit for homeowners who'd rather keep their savings than hand 30% to 40% to a protest firm.

For the shape of the appeal process itself, our property tax taxation overview walks through the administrative framework.

Are there limits on how much your property taxes can increase each year?

Many states cap annual assessment increases to blunt tax shock from fast markets. The caps vary a lot.

State	Annual Assessment Increase Cap	Authority
California	2% of prior year value (or CPI if lower)	Prop 13 [5]
Florida	3% or CPI (whichever is less) for homestead	Save Our Homes [9]
Michigan	5% or CPI (whichever is less)	Const. Art. IX, Sec. 3
Maryland	10% per year on phased increases	State Dept. of Assessments
Texas	10% per year on appraised value (homestead)	Tax Code Sec. 23.23 [10]
Colorado	Various local limits post-TABOR	Complex; varies by district

Two catches. Most caps apply only to the assessed value used for taxation, not to the market value estimate. And most caps ride on homestead or owner-occupied status, so rental and commercial property often gets no such protection.

The Texas 10% cap sounds generous, but it caps the taxable value, not the rate. If rates also climb, the bill still climbs. In fast-growing Texas suburbs like Collin County and Williamson County, owners have watched bills rise sharply even under the cap, because rates stayed high and values keep pushing against the ceiling. Our guides to collin county property tax and williamson county property tax go deeper on those markets.

How does property tax calculation work for commercial and rental property?

Commercial property gets assessed differently in most states. The income approach, not comparable sales, drives valuation for income-producing property. Assessors capitalize the net operating income using a market capitalization rate to derive value.

Take a commercial building throwing off $200,000 in net operating income in a market where similar assets trade at a 6% cap rate. The assessor derives a value of roughly $3.33 million ($200,000 / 0.06). The tax rate then applies to that figure, or to the assessed value after your state's ratio.

Rental residential property sits between the two worlds. A small landlord with a duplex may get assessed on comparable sales. A 50-unit apartment building almost certainly gets income-approach treatment. This matters when you build your appeal evidence. Comparable sales won't move a hearing officer who valued your property on income, and income data won't help if they used sales.

For local examples of how commercial assessments work in practice, see our hennepin county property tax and detroit property taxes guides, both markets where commercial assessment disputes are common.

One more thing worth knowing: commercial property in California falls under the same Prop 13 acquisition-value rules as residential. Proposition 15, the split-roll measure that would have reassessed commercial property to market value, was rejected by California voters in November 2020 ^[11].

Where can you find the official numbers needed to calculate your own taxes?

Every input to the calculation is public record. Here's where each one lives.

Assessed value: Your county assessor's website. Search by parcel number or address. The notice of assessment mailed to you each year states it too.

Tax rate: Your county auditor, tax collector, or assessor publishes rate tables. California counties publish tax rate area schedules. Texas county appraisal districts publish entity rates.

Exemptions: Listed on your annual tax bill as deductions from assessed value, or on the assessor's property record page.

Levy details: Many counties post a line-item breakdown on the tax bill or online property detail page, showing how much goes to each taxing entity.

For payment portals and account lookup tools by county, our online tax payment for property guide covers the major ones.

California has two free resources worth reading. The State Board of Equalization publishes the Property Tax Rules (California Code of Regulations, Title 18) and a plain property owners' guide, Publication 29 ^[12]. The California Legislative Analyst's Office published a clear explainer on how Prop 13 shapes property tax calculation, worth your time if you own or plan to buy in the state ^[13].

For any state, the assessment methodology your county uses is documented in public assessment manuals filed with your state department of revenue or taxation. Those manuals are how assessors are supposed to do the job. They're also your roadmap for finding where they went wrong.

Frequently asked questions

How do I calculate my property tax bill from scratch?

Start with your assessed value (from your county assessor's website or your assessment notice). Multiply it by the combined tax rate for your district, written as a decimal (1.5% = 0.015). Subtract any exemption amounts times the rate. The result is your annual tax. Divide by 12 for a monthly escrow estimate. California uses purchase price as the assessed value base, rising a maximum of 2% per year.

What is a mill rate and how does it work?

One mill equals $1 of tax per $1,000 of assessed value. A 20-mill rate is the same as 2%. To use it: divide your assessed value by 1,000, then multiply by the mill rate. A property assessed at $250,000 in a 25-mill jurisdiction owes $6,250 a year before exemptions. Most U.S. counties post their combined mill rates on the county assessor or auditor website.

How is property tax calculated in California?

California property tax equals the base year value (usually the purchase price) times a rate capped at 1% under Proposition 13, plus any voter-approved bonds and assessments. The base year value can rise at most 2% per year. A home bought for $750,000 with a total rate of 1.2% owes roughly $9,000 the first year, and that amount grows slowly unless the property is sold or significantly improved.

What is the difference between assessed value and market value?

Market value is what your home would sell for between a willing buyer and seller. Assessed value is the number the county uses for tax purposes. In states that reassess annually, the two run close. In California they diverge, because assessed value freezes at the purchase price and grows at most 2% per year. A home worth $1.2 million on the market might carry an assessed value of $500,000 if the owner bought years ago.

How do homestead exemptions reduce my property tax?

A homestead exemption cuts your taxable assessed value by a fixed dollar amount or percentage. Multiply the exemption amount by your tax rate to find the annual savings. Texas offers a $100,000 school district homestead exemption as of 2023. At a combined school district rate of 1.0%, that saves $1,000 a year. You usually apply once to your county assessor or appraisal district, and the exemption renews automatically.

Can my property taxes go up if I haven't improved my home?

Yes. Your assessed value can rise through annual reassessment in most states, with no improvements at all. The tax rate can also rise if local governments need more revenue. In California, assessed value is capped at 2% growth a year, so big swings are unlikely for longtime owners. In Texas, a homestead's taxable value is capped at 10% growth. But rate increases can raise your bill independent of value.

How do I protest my property tax assessment in California?

File an Assessment Appeal Application with your county's Assessment Appeals Board between July 2 and September 15 of the assessment year (some counties extend to November 30 for roll corrections). Gather comparable sales from the 90-day window around January 1 of the tax year to support a lower value. No lawyer required. The hearing is administrative, not a court proceeding. Filing fees are minimal, usually under $100 depending on the county.

What happens to my property taxes when I buy a home in California?

Your assessed value resets to the purchase price on the date of sale. This is a change of ownership reassessment under Proposition 13. The county assessor records the transfer and issues a supplemental assessment for the new base. Your ongoing annual tax is capped at 1% of the purchase price plus local voter-approved additions, with assessed value allowed to grow at most 2% per year afterward.

Which states have the highest and lowest property tax rates?

Per the Lincoln Institute of Land Policy's 2023 50-State Property Tax Comparison Study, New Jersey has the highest effective rate on owner-occupied homes at about 2.23%, followed by Illinois at 1.88%. Hawaii is lowest at roughly 0.32%, with Alabama close behind at 0.41%. California sits at about 0.75%, below the national median of roughly 1.02%, largely because Proposition 13 holds assessed values below market for longtime owners.

How is commercial property tax calculated differently from residential?

Assessors typically use the income approach for commercial property: estimate net operating income, then divide by a market capitalization rate to derive value. For example, $150,000 net income at a 5% cap rate implies a $3 million assessed value. Residential property usually uses comparable sales. This matters for appeals: commercial owners need income-and-expense evidence more than sales comps. Most states apply the same rate to commercial and residential, though a few levy higher rates on commercial.

What is a supplemental property tax bill and when does it arrive?

A supplemental tax bill reflects a mid-year change in assessed value, most often from a sale or completed new construction. In California, the county auditor-controller issues it after the change of ownership is recorded. It covers the difference between the old and new assessed values for the part of the tax year remaining after the change. It arrives separately from your regular annual bill, often six to twelve months after closing.

How do I estimate property taxes before buying a home?

Look up the current assessed value and tax rate on the county assessor's website. In California, swap the current assessed value for your purchase price. In most other states, assume your assessed value will eventually match your purchase price after reassessment. Multiply assessed value by the combined tax rate. Subtract exemptions you'll qualify for. Add the result to your mortgage payment to see your true monthly housing cost before you make an offer.

Do property taxes reset when a home is inherited?

It depends on the state and, in California, on who inherits and what they do with the property. Before Proposition 19 (effective February 16, 2021), California parent-to-child transfers were largely exempt from reassessment. Now a child must move in and use the home as a primary residence to avoid full reassessment, and the exclusion caps at $1 million above the parent's assessed value. Other states generally reassess at death when title transfers, though some offer limited exclusions for surviving spouses.

What records should I check to see if my assessment is wrong?

Pull your assessor record and verify square footage, number of bedrooms and bathrooms, lot size, year built, and listed improvements. Errors in these fields are common and directly inflate assessed value. Then search comparable sales (Zillow, Redfin, or the MLS through a cooperative agent) for similar homes sold near the January 1 assessment date. If those sales point to a lower value than your assessment, you have a basis for appeal.

Sources

1. Illinois Department of Revenue, Property Tax Overview: Illinois targets a 33.33% assessment ratio in most counties, meaning a $300,000 home carries an assessed value near $100,000 before the tax rate applies.
2. Lincoln Institute of Land Policy, 50-State Property Tax Comparison Study (2023): Effective rates on owner-occupied homes range from roughly 0.32% in Hawaii to 2.23% in New Jersey; California sits at about 0.75%; national median is approximately 1.02%.
3. International Association of Assessing Officers (IAAO), Standard on Mass Appraisal of Real Property: Assessors use sales comparison, cost, and income approaches to estimate value; mass appraisal uses statistical models applied to entire neighborhoods.
4. National Conference of State Legislatures, Property Taxes Overview: The mill rate is derived by dividing total property tax revenue needed by the total assessed value of all taxable property in a jurisdiction.
5. California State Board of Equalization, Proposition 13 and Property Tax Rules, California Code of Regulations Title 18: Proposition 13 caps the general levy at 1% of base year value and limits annual assessment increases to 2% or the CPI change, whichever is lower; regular assessment appeal window is July 2 to September 15.
6. Santa Clara County Assessor, Property Tax Overview: Santa Clara County combined rates in many tax rate areas exceed 1.25% when voter-approved bonds are included.
7. California State Board of Equalization, Proposition 19 Parent-Child Transfer Exclusion: Under Proposition 19 (effective February 16, 2021), the parent-to-child transfer exclusion from reassessment is limited to primary residences where the child moves in, with a $1 million cap above the parent's assessed value.
8. Florida Department of Revenue, Property Tax Exemptions: Florida's homestead exemption is $50,000 off assessed value for most homeowners and activates Save Our Homes, which caps annual assessment increases at 3% or CPI change, whichever is lower.
9. Texas Comptroller of Public Accounts, Property Tax Code Section 23.23 and Homestead Exemptions: Texas homestead exemption from school district taxes is $100,000 as of 2023; appraisal review board protest deadline is May 15 or 30 days after notice, whichever is later; homestead appraised value is capped at 10% annual growth.
10. California Secretary of State, November 2020 General Election Results, Proposition 15: California voters rejected Proposition 15 (split-roll commercial reassessment) in November 2020, leaving commercial property under the same Prop 13 acquisition-value rules as residential.
11. California State Board of Equalization, California Property Tax: An Overview (Pub. 29): The BOE publishes a free property owners' guide (Publication 29) explaining California property tax calculation rules under Prop 13.
12. California Legislative Analyst's Office, Understanding Proposition 13: The LAO published an accessible explainer on how Prop 13 affects property tax calculation for California homeowners and buyers.