What Is Property Tax?
Property tax is a recurring annual tax levied by local governments (counties, municipalities, school districts) on real estate based on the property's assessed value. The tax rate — often expressed as a mill rate (dollars per $1,000 of assessed value) — is set by each taxing authority. Property taxes fund schools, roads, emergency services, and local infrastructure, and are typically the largest non-mortgage housing cost for homeowners.
Key Facts
- Property taxes generated approximately $730 billion in revenue for state and local governments in 2023, making them the single largest source of locally collected tax revenue in the United States
- Effective property tax rates range from 0.27% of home value in Hawaii to 2.23% in New Jersey — an 8x difference that means a $400,000 home costs $1,080/year in Hawaii versus $8,920/year in New Jersey
- The Tax Cuts and Jobs Act of 2017 capped the state and local tax (SALT) deduction at $10,000, eliminating a major tax benefit for homeowners in high-tax states like New Jersey, New York, Connecticut, and California
- Property tax delinquency is a leading cause of non-mortgage foreclosure — local governments can place a tax lien on a property after as little as one missed payment, and that lien takes priority over the mortgage
- Most mortgage servicers collect property taxes through escrow accounts (included in the monthly PITI payment), but approximately 20-25% of homeowners pay property taxes directly — those without escrow face the full annual or semi-annual bill at once
How Property Taxes Are Calculated
Property tax calculations involve two separate determinations: the assessed value of your property and the tax rate applied to that value.
- Assessed value: Your county assessor determines your property's taxable value based on recent sales of comparable properties, the property's physical characteristics, and local market conditions. In most states, the assessed value is a percentage of fair market value (ranging from 10% to 100% depending on the state's assessment ratio).
- Mill rate / tax rate: Each taxing authority — county, municipality, school district, special district — sets its own rate. These are combined into a total rate. A mill rate of 25 mills means $25 per $1,000 of assessed value, or an effective rate of 2.5%.
Your total property tax = assessed value x total mill rate. For example, a home assessed at $300,000 in a jurisdiction with a combined 20-mill rate would owe $6,000 annually.
Appealing Your Property Tax Assessment
If you believe your property's assessed value is too high, you have the right to appeal. The appeal process typically involves:
- Review your assessment notice: Check for errors in square footage, lot size, number of bedrooms/bathrooms, and other physical characteristics that affect value.
- Gather comparable sales: Find 3-5 recent sales of similar properties in your area that sold for less than your assessed value.
- File by the deadline: Most jurisdictions have a 30-90 day window after assessment notices are mailed. Missing this deadline usually waives your right to appeal for that year.
- Attend the hearing: Present your evidence to the board of assessment review or equivalent body. Many appeals are resolved at this informal level.
- Escalate if needed: If the initial appeal fails, most states allow further appeal to a state tax tribunal or court.
Success rates on property tax appeals vary, but studies suggest that homeowners who appeal win a reduction roughly 30-40% of the time, with typical reductions of 5-15% of assessed value.
Property Tax Escrow and Your Mortgage Payment
Most mortgage lenders require borrowers to escrow property taxes — meaning a portion of each monthly mortgage payment is set aside in an escrow account, and the servicer pays the tax bill when it comes due. This protects the lender because unpaid property taxes create a lien that takes priority over the mortgage.
Escrow can create payment surprises. When property taxes increase (due to reassessment, new levies, or expired exemptions), the escrow portion of your monthly payment rises too. An escrow shortage — when the account doesn't have enough to cover the tax bill — forces either a lump-sum payment or a monthly increase spread over 12 months.
When Property Taxes Go Unpaid
Property tax delinquency triggers a sequence of escalating consequences:
- Penalties and interest: Most jurisdictions add 1-2% per month in penalties, plus interest, on unpaid taxes.
- Tax lien: The local government files a lien against the property. This lien has "super-priority" — it takes precedence over the mortgage and nearly all other claims.
- Tax lien sale: Many jurisdictions sell tax liens to investors, who pay the delinquent taxes in exchange for the right to collect the debt plus interest (often 8-36% depending on the state).
- Tax deed sale / foreclosure: If the homeowner fails to redeem (pay off) the tax lien within the redemption period (typically 1-3 years), the lienholder or government can force a sale of the property.
This process operates independently of any mortgage foreclosure. A homeowner who is current on their mortgage can still lose their home to a tax lien if property taxes go unpaid.
The SALT Deduction Cap
Before 2018, homeowners could deduct the full amount of state and local taxes (including property taxes) from their federal taxable income. The Tax Cuts and Jobs Act capped this deduction at $10,000 per household. For homeowners in high-tax states paying $15,000-$30,000+ in combined property and state income taxes, this cap effectively raised their federal tax burden by thousands of dollars annually. The cap is scheduled to expire after 2025 unless Congress extends it.
State-by-State Variations
Property tax rates, assessment methods, exemptions, and payment schedules vary dramatically across states. Some states cap assessment increases; others reassess annually at full market value.
| State | Key Difference |
|---|---|
| New Jersey | Highest effective property tax rate in the nation at approximately 2.23% of home value. Average annual property tax bill exceeds $9,500. No assessment cap — values track market. Major driver of housing cost burden. |
| Texas | No state income tax but high property taxes (avg 1.68%). Annual assessment increases capped at 10% for homesteads (20% for non-homesteads) under SB 2 (2019). Homestead exemption provides $100,000 exemption from school district taxes. |
| California | Proposition 13 (1978) limits the tax rate to 1% of purchase price and caps assessed value increases at 2% per year until the property is sold, when it resets to market value. This creates dramatic disparities between long-term and recent homeowners. |
| Hawaii | Lowest effective property tax rate in the nation at approximately 0.27%. Despite high home values, low tax rates keep annual bills relatively modest. Homeowner exemption of $100,000 reduces assessed value. |
| Illinois | Second-highest effective property tax rate (approximately 2.07%). Cook County (Chicago) uses a complex classification system with different assessment levels for residential vs. commercial property. Property tax is the primary funding mechanism for local school districts. |
Frequently Asked Questions
How often are property taxes reassessed?
It depends on the state and county. Some jurisdictions reassess annually (e.g., most of Illinois), others on a fixed cycle (every 3-5 years in Ohio and Michigan), and California only reassesses at sale under Proposition 13. Check with your county assessor's office for your local schedule.
Can property taxes cause foreclosure?
Yes. Unpaid property taxes result in a tax lien that takes priority over your mortgage. If you don't pay within the redemption period (typically 1-3 years depending on the state), the government or a tax lien investor can force a sale of your home — even if your mortgage is current.
What is the SALT deduction cap?
The Tax Cuts and Jobs Act of 2017 capped the deduction for state and local taxes (including property taxes) at $10,000 per household on federal returns. Homeowners in high-tax states like NJ, NY, CT, and CA lost thousands in annual deductions. The cap is set to expire after 2025 unless extended by Congress.
How do I appeal my property tax assessment?
File an appeal with your county's board of assessment review within the deadline (typically 30-90 days after notices are mailed). Bring comparable sales data showing similar homes sold for less than your assessed value. Success rates are roughly 30-40%, with typical reductions of 5-15%.
Are property taxes included in my mortgage payment?
Usually yes. Most lenders require an escrow account that collects taxes monthly as part of your payment (PITI). The servicer then pays your tax bill when due. FHA, VA, and USDA loans always require escrow. Conventional loans may allow escrow waivers if you have 20%+ equity.