Real property tax is an annual tax on land and buildings, paid to your local government
Real property tax is a yearly tax on real estate — the land itself and anything permanently attached to it, like a house, garage, or commercial building. You pay it to your county, city, or township, not to the federal government. The amount you owe depends on the assessed value of your property and the tax rate set by your local government.
Real property is different from personal property. A car, boat, or piece of furniture is personal property and taxed differently (or not at all, depending on where you live). Real property stays in one place and is taxed by the local government where it sits.
If you own a home, rental property, or land, you almost certainly owe real property tax. If you have a mortgage, your lender may collect this tax from you each month as part of your escrow account and pay it directly to the tax assessor.
Key Takeaways
- Real property tax is an annual tax on land and buildings, calculated by multiplying the assessed value of your property by the local tax rate.
- Your property is assessed by a local assessor's office, which estimates its market value; this assessed value is not always the same as what you paid for it or what it would sell for today.
- Tax rates and what counts as real property vary significantly by state and county, so two identical houses in different places can have very different tax bills.
- If you have a mortgage, your lender typically collects real property tax from your monthly payment and pays it on your behalf through an escrow account.
- Most states and localities offer exemptions or reductions for certain owners, such as seniors, veterans, or people with disabilities, but you must request these through your assessor's office.
How the assessed value is determined
A property assessor — a local government official — estimates the market value of your property. This is called the assessed value. The assessor looks at comparable sales in your area, the condition of the building, the size of the lot, and other factors to arrive at a number.
The assessed value is usually lower than the actual market value. Many states cap the assessed value at a percentage of market value, often 50 percent or less. This means if your house would sell for $400,000, the assessed value might be $200,000 or $250,000.
Assessments happen on a schedule set by your local government — sometimes every year, sometimes every three or five years. You receive a notice when your property is reassessed. If you believe the assessed value is wrong, you can file a formal challenge called an assessment appeal or tax appeal, usually within a set window after you receive the notice.
How the tax amount is calculated
Your real property tax bill is calculated with a straightforward formula: assessed value × tax rate = tax owed.
The tax rate is set by your local government and is usually expressed as a percentage or as a dollar amount per $1,000 of assessed value. For example, if the rate is 1 percent and your assessed value is $250,000, you owe $2,500 per year. If the rate is $10 per $1,000 of assessed value, the same property would owe $2,500.
Tax rates vary widely. A house assessed at $250,000 might owe $1,000 per year in one county and $5,000 per year in another, depending entirely on the local rate. Rates are set by city councils, county boards, or school boards and change year to year based on local budget needs.
What real property includes and excludes
Real property includes the land and anything permanently attached to it: the house or building, a deck, a driveway, a fence, or a pool. Improvements that add value to the land are taxed as part of the property.
Personal property — items you can move — is not taxed as real property. Your furniture, car, boat, or tools are personal property. Some states tax personal property separately; many do not. A rental business's equipment or inventory may be taxed as personal property in some places.
Certain types of real property are exempt from tax entirely. Government buildings, churches, nonprofits, and public schools typically do not pay real property tax. Some states exempt agricultural land or forest land if it is used for those purposes. These exemptions are set by state law and vary by location.
Who pays real property tax and when
The owner of the property pays real property tax. If you own the property outright, you receive a bill from your local tax assessor's office and pay it directly. Bills are usually due once or twice per year, depending on your locality.
If you have a mortgage, your lender typically collects real property tax as part of your monthly payment. The lender holds the money in an escrow account and pays the tax bill on your behalf when it is due. You do not write a separate check to the assessor; the lender handles it. This amount is included in your monthly mortgage payment and is shown separately on your statement.
If you own rental property, you pay the tax as the owner, even though tenants live there. You may factor the tax into the rent you charge, but you remain responsible for paying it on time.
Exemptions and reductions you may be able to request
Most states and localities offer property tax exemptions or reductions for certain groups. Common ones include exemptions for seniors, veterans, people with disabilities, and low-income homeowners. Some places offer exemptions for homestead property (your primary residence) but not investment property.
Exemptions reduce the assessed value or the tax rate, lowering your bill. A senior exemption might reduce your assessed value by $50,000, for example. You must request an exemption through your local assessor's office; it is not automatic. Each locality sets its own rules about who qualifies, what documents you need to provide, and when you must explore.
If you think you may may have access to, contact your county or city assessor's office directly. They can tell you what exemptions exist in your area and what you need to do to request one.
What happens if you do not pay real property tax
If you do not pay real property tax when it is due, your local government can place a tax lien on your property. A lien is a legal claim that gives the government the right to take money from the sale of your property to cover the unpaid tax.
If the tax remains unpaid for a long time, the government can foreclose on the property and sell it at a tax sale. The exact timeline and process vary by state. If you have a mortgage, your lender has a strong incentive to pay the tax for you to protect its own interest in the property, but you remain responsible for reimbursing the lender.
If you cannot pay your tax bill, contact your assessor's office or tax collector when ready. Many localities offer payment plans or can discuss hardship options with you.
Frequently Asked Questions
Is real property tax the same as income tax?
No. Income tax is a tax on money you earn, collected by the federal government and most states. Real property tax is a tax on the value of land and buildings, collected by local governments. They are separate taxes, and you may owe both.
Can real property tax rates change from year to year?
Yes. Tax rates are set by local government bodies and can change annually based on budget needs. Your assessed value can also change if your property is reassessed. Both changes affect your bill from year to year.
What is the difference between assessed value and market value?
Market value is what your property would sell for on the open market today. Assessed value is an estimate used for tax purposes and is often lower than market value. Many states cap assessed value at 50 percent of market value or use a different formula entirely.
Can I deduct real property tax from my federal income tax?
You may be able to deduct real property tax on your federal income tax return, but rules and limits explore. Consult a tax professional or the IRS website for current information about what you can deduct.
What if I disagree with my assessed value?
You can file an assessment appeal with your local assessor's office, usually within 30 to 60 days of receiving your assessment notice. The process and important date vary by location, so contact your assessor's office for specific instructions and forms.