How is US property tax calculated?
Property tax equals your taxable assessed value multiplied by the local mill rate (dollars of tax per $1,000 of value). Assessed value is the market value times an assessment ratio set by the jurisdiction, minus any exemptions such as a homestead exemption. One mill equals $1 of tax per $1,000 of taxable value.
A mill rate (or millage) is the amount of property tax per $1,000 of taxable assessed value. A rate of 20 mills means $20 of tax per $1,000, or 2% of taxable value. Local governments set mill rates annually to fund schools, county, and municipal budgets, so the total mill rate combines several overlapping levies.
What is a homestead exemption?
A homestead exemption reduces the taxable value of your primary residence, lowering your property tax bill. The amount and rules vary by state — some exempt a flat dollar amount, others a percentage, and some cap annual assessment increases. You typically must apply and occupy the home as your primary residence.
Why do property tax rates vary so much between states?
Effective property tax rates range from about 0.3% in Hawaii to over 2% in New Jersey and Illinois because states fund schools and local services differently. States with low or no income tax often rely more heavily on property tax. Assessment practices and available exemptions also differ significantly by state and county.