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Property Tax Overview

Goals

Develop an overview of the basics of property taxes (how do they work, why they must be paid). Identify data on the property tax calculation in states like California, New York, Texas, Florida, and other major US cities and counties. Include information on exemptions, options to pay in installments, discounts, and differences between different customer segments.

Early Findings

Importance of Property Taxes

  • Property taxes are key to state and local budgets. Property taxes are the leading category of revenue for state and local governments in the US, yielding 34% of tax collection.
  • Education, transportation, emergency services, parks, recreation, and libraries are funded by property taxes.
  • Property taxes directly targeted to education funds are responsible for 65% of local school revenue. Illinois, Florida, New Hampshire, Nebraska, and New Jersey rely on direct property taxes for more than 45% of total school revenue.

How Property Tax Works

  • Property tax is a regressive tax calculated by a local government and paid by the owner of the property.
  • The tax is based on the value of the property. It is determined by multiplying the current market value of the property by the property tax rate.
  • The property tax rate is typically recalculated by the local government each year and may be determined by a local board, council, or legislature.
  • Every one to five years, a tax assessor values the property in order to charge the owner the appropriate rate.
  • A complete equation for determining how much property tax is owed would be the following:
    • Market Value x Assessment Ratio = Assessed Value
    • Assessed Value - Exemptions = Taxable Value
    • Taxable Value x Sum of All Relevant Millage Rates = Property Tax Before Credits
    • Property Tax Before Credits - Homestead Credits and Circuit Breakers = Property Tax Owed

Property Tax in California

  • California's Proposition 13, passed in 1978, mandates that property taxes are calculated by multiplying the property's tax assessed value by the tax rate. The standard tax rate is set a 1%.
  • SmartAsset has a property tax calculator for California that provides an estimate based on location and home value.
  • California provides an exemption of $7,000 maximum from property tax for any property that is the owner's principal place of residence.
  • California also offers exemptions for people 55 years or older.
  • Property taxes are typically paid in two installments in California.
  • In LA County and Orange County, some people are eligible for longer installment plans for their property tax.

Other Relevant Information

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