📘 What Is Property Tax in Real Estate?

Property taxes are annual taxes assessed by local governments—usually counties, cities, or school districts—based on the value of real property. These taxes fund public services like schools, roads, police, fire departments, and parks. For homeowners, property taxes are an ongoing cost of ownership and an important factor when budgeting for a home purchase.

How Property Taxes Work

Local tax authorities calculate property taxes using three components:

  • Assessed value — the taxable value assigned by the county assessor.
  • Assessment ratio — some states tax only a percentage of market value.
  • Tax rate (millage rate) — the rate applied per $1,000 of assessed value.

The basic formula for property taxes is:

Property Tax = Assessed Value × Tax Rate

Tax rates vary widely by state and county. Some states reassess property values annually, while others limit increases or reassess only when the property sells.

Why Property Taxes Matter in Real Estate

  • Monthly affordability: Property taxes affect mortgage escrow payments and overall housing costs.
  • Buyer decision-making: High-tax areas may reduce affordability or desirability.
  • Bond & school levies: Community votes can raise or lower tax rates.
  • Investment returns: Investors factor taxes into NOI and cap rate analysis.

Property taxes also appear on closing disclosures and prorations when a home is bought or sold.

Example of Property Tax Calculation

Suppose a home has:

  • Assessed value: $400,000
  • Local tax rate: 1.25%

Property tax would be:

$400,000 × 0.0125 = $5,000 per year

This amount is typically paid through the lender’s escrow account or directly to the tax collector.

Why Property Taxes Matter for FSBO Sellers

  • Required disclosure: Buyers often ask for annual tax amounts upfront.
  • Marketing materials: Many MLS fields require property tax data.
  • Prorations at closing: Sellers typically credit buyers for taxes covering the period before closing.
  • Buyer affordability: High property taxes may impact offer strength.

Listing your home through Brokerless Flat Fee MLS ensures your tax information is presented clearly to buyers.

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