The Basic Formula
Your property tax bill comes down to one formula:
Property Tax = (Assessed Value − Exemptions) × Tax Rate
Every piece of this formula is set locally — by your county, city, school district, and sometimes special taxing districts. That's why property taxes can vary dramatically between two houses on the same street (if they're in different taxing districts).
Step 1: Assessed Value
Your county assessor determines your property's assessed value, which is supposed to reflect its market value. In practice, however, many counties use a different ratio:
- 100% assessment: Assessed value = full market value (most common)
- Fractional assessment: Some states assess at 50%, 40%, or other fractions of market value — but then use a proportionally higher tax rate
Example: A home worth $400,000 in a 100%-assessment state has an assessed value of $400,000. In a state that assesses at 50%, the assessed value is $200,000 — but the tax rate would be roughly double.
Reassessments happen on different schedules: annually in some states, every 3–5 years in others. After a reassessment, your bill can jump significantly even if the tax rate stays the same.
Step 2: Exemptions
Before the tax rate is applied, you subtract any exemptions you qualify for. The most common is the homestead exemption for primary residences.
Example: $400,000 assessed value − $50,000 homestead exemption = $350,000 taxable value.
Step 3: The Tax Rate (Mill Rate)
Property tax rates are often expressed in mills. One mill = $1 of tax per $1,000 of assessed value, or 0.1%.
Your total tax rate is the sum of all the taxing districts that apply to your property: county, city/municipality, school district, community college, fire district, etc.
| Taxing District | Rate (mills) |
|---|---|
| County | 8.5 |
| School District | 12.0 |
| City/Municipality | 6.0 |
| Community College | 1.5 |
| Total | 28.0 mills (2.8%) |
Full Worked Example
Let's put it all together for a home in a typical midwestern county:
- Market value: $350,000
- Assessment ratio: 100%
- Assessed value: $350,000
- Homestead exemption: −$10,000
- Taxable value: $340,000
- Mill rate: 24 mills (2.4%)
- Annual property tax: $340,000 × 0.024 = $8,160
Broken down monthly, that's $680 per month — which a lender would add to your mortgage payment as an escrow requirement.
Effective Tax Rate vs. Nominal Tax Rate
You'll often see two rates quoted:
- Nominal rate: The stated mill rate applied to assessed value
- Effective rate: The actual percentage of market value you pay in taxes
PropertyTaxPeek uses effective rates for all comparisons because they're the most accurate reflection of your real tax burden. A county with a 4% nominal rate on 50%-assessments has a 2% effective rate — the same as a county with a 2% nominal rate on 100%-assessments.
Why Your Tax Bill Changes Year to Year
Your bill can change because of:
- Reassessment: Your property value was updated (up or down)
- Rate changes: Local government approved a higher mill rate
- New levies: Voters approved a school bond or special district
- Exemption changes: You gained or lost an exemption (moved, turned 65, etc.)
School District Taxes: The Biggest Slice
In most counties, 50–70% of your property tax bill goes to schools. This is why school district boundaries matter so much in real estate. Two homes one street apart in different school districts can have very different tax bills.