What Is Property Tax?
Property tax is the annual tax local governments charge on the value of real estate you own. It's the main way America funds schools, police, fire protection, and roads — and for most homeowners it's one of the biggest bills of the year. Here's how it works, in plain English.
The definition
A property tax is an ad valorem tax — Latin for "according to value." Instead of taxing your income or a purchase, it taxes what you own: your land, your house, and any permanent improvements on it. Each year (or on your state's reassessment cycle), a local official called an assessor or appraiser estimates your property's value, and your tax is a percentage of that value.
Property taxes are set and collected locally — by counties, cities, school districts, and special districts — not by the federal government. That's why the same house can owe wildly different amounts depending on where it sits: effective rates range from under 0.3% of home value in parts of Hawaii to well over 2% in parts of New Jersey, Illinois, and Texas. You can see how your state compares in our 50-state guides and state comparison tool.
How your bill is calculated
Almost every jurisdiction follows the same four-step formula:
- Assessed value. The assessor estimates your property's market value. Some states then apply an assessment ratio — for example, assessing homes at only a fraction of market value — so the "assessed value" on your notice may not be the same as what your home would sell for.
- Exemptions. Amounts are subtracted for any exemptions you've claimed — homestead, senior, veteran, disability, and more. These can cut thousands off your taxable value. Our free Exemption Checkup shows what you qualify for in your state.
- Tax rate. Each local government that serves your address — county, city, school district, sometimes hospital or utility districts — sets its own rate. Rates are often quoted in mills: one mill equals $1 of tax per $1,000 of taxable value.
- The bill. Taxable value × combined rate = what you owe. Your bill lists each jurisdiction's slice separately — our guide to reading your property tax bill walks through every line.
Real vs. personal property tax
"Property tax" usually means tax on real property — land and the structures permanently attached to it. Some states also levy personal property tax on movable property such as vehicles, boats, or business equipment. The rules, deadlines, and appeal processes differ, so we cover them separately: see real property tax and personal property tax.
If your property tax seems too high
Assessments are mass-produced estimates, and they're frequently wrong in the government's favor. Every state gives you the legal right to appeal your assessed value — typically within a window of 30–60 days after notices go out. Start by checking whether you're over-assessed with our free Over-Assessment Calculator, then see your state's exact process, deadline, and forms in our state appeal guides.
Frequently asked questions
What is a property tax in simple terms?
A property tax is a local tax you pay each year based on the value of property you own — most commonly your home and the land it sits on. Your county or city assessor estimates what the property is worth, a tax rate is applied to that value, and the money funds local services like public schools, police, fire departments, and roads.
How is property tax calculated?
In most places: assessed value × assessment ratio − exemptions = taxable value, then taxable value × your combined local tax rate = your bill. Rates are often expressed in mills (one mill = $1 of tax per $1,000 of taxable value). Because several local governments (county, city, school district) each set a rate, your bill usually combines multiple line items.
Who has to pay property tax?
The owner of record on the assessment date owes the tax. If you have a mortgage, your lender usually collects it monthly through an escrow account and pays the bill for you — but you're still the one paying it, and you're the one with the right to appeal the assessment.
What happens if property taxes aren't paid?
Unpaid property taxes accrue penalties and interest, and the taxing authority can eventually place a lien on the property and, after a legally defined period, sell the lien or the property to recover the debt. If you're struggling to pay, most states offer payment plans, and many offer deferrals for seniors, veterans, or homeowners with disabilities.
Can I lower my property tax?
Often, yes — two main ways. First, claim every exemption you qualify for (homestead, senior, veteran, disability). Second, appeal the assessed value if it's higher than what your home is actually worth; nationwide, a large share of properties are over-assessed, and appeals frequently succeed when backed by good evidence.
Is your property tax higher than it should be?
Run our free over-assessment check — enter your address or your assessed value and we'll show whether your number looks high for your market. Takes about two minutes.