Understanding Property Taxes: How They're Calculated and How to Lower Them

Property taxes are usually the second-biggest cost of owning a home after the mortgage itself — and unlike the mortgage, they never end. Understanding how the bill is built is the first step to budgeting for it and, sometimes, shrinking it.

How the bill is calculated

Your county assessor assigns the home an assessed value, which may be a percentage of market value depending on your state. That value, minus any exemptions, is multiplied by the local tax rate (often expressed in 'mills' — dollars per thousand of value). The U.S. average works out to roughly 1% of home value per year, but real rates run from about 0.3% to over 2% by state.

Exemptions worth claiming

• Homestead exemption: reduces taxable value on your primary residence in many states — often not automatic, so file for it.
• Senior, veteran, and disability exemptions: significant reductions where available.
• Assessment caps: some states limit how fast assessed value can grow while you own the home.

Appealing your assessment

1. 1Check the assessor's record for errors — wrong square footage or room counts are common and fixable.
2. 2Pull comparable sales; if similar homes sell below your assessed value, you have a case.
3. 3File within your county's appeal window (often 30–90 days after notices go out) with your evidence attached.

Escrow: how most people actually pay

Most lenders collect one-twelfth of the annual tax bill with each mortgage payment and pay the county from an escrow account. When taxes rise, your monthly payment rises at the next escrow analysis — which is why a 'fixed' mortgage payment isn't entirely fixed.