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How Are Real Estate Taxes Computed?

how is tax computed

Property taxes are simple to calculate, but exemptions complicate them.


Property taxes are based on the market value of each property, which is usually defined as the price a knowledgeable, interested buyer and seller would agree on. Assessors, according to the Investopedia website, may use recent sale prices of similar properties to figure out the value; calculate the current cost of buying an identical patch of land and erecting an identical building; or figure the value of a commercial property based on the income it generates.


Many states have exemptions or deductions on their property tax which assessors must factor in. In California, for example, assessed values can only rise 2 percent from year to year, plus the value of new construction, according to the state Board of Education. If the property

is sold, it's reassessed at current market value, then the 2 percent limit resumes until it's sold again. Two identical homes can have sharply different tax bills depending on when they were purchased.



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