Taxes

How Property Tax Assessments Work

Property taxes are one of the largest recurring costs of real estate ownership. Understanding how your assessed value is determined — and what to do if it's wrong — can save thousands of dollars per year.

Assessed Value vs. Market Value

These two figures are frequently confused:

• Market value is what a buyer would pay for your property in an arm's-length transaction today. It's what Zillow, Redfin, and comparable sales reflect.
• Assessed value is what the county assessor has determined your property is worth for tax purposes. In most states, assessed value is set as a percentage of market value — but that percentage, called the assessment ratio, varies widely.

How Mill Rates Work

Property tax rates are expressed in mills, where 1 mill = $1 per $1,000 of assessed value (or 0.1%). Your effective tax rate is the mill rate applied to the assessed value:

Annual Tax = (Assessed Value ÷ 1,000) × Mill Rate

Or equivalently:
Annual Tax = Assessed Value × (Mill Rate × 0.001)

Mill rates are set by overlapping taxing districts — county, city, school district, library district, fire district, community college, etc. Your total bill is the sum of all applicable levy rates.

Common Exemptions That Reduce Your Bill

Homestead Exemption

Available in most states for primary residences. Reduces the assessed value by a fixed dollar amount or percentage. Examples:

• Texas: $100,000 homestead exemption on school district taxes (significantly reduces the largest component of the bill)
• Florida: $50,000 homestead exemption (first $25,000 applies to all tax levies; second $25,000 applies to non-school levies)
• California: $7,000 homestead exemption (small; Prop 13 assessment cap is more valuable)

Investment properties and STRs typically do not qualify for homestead exemptions. If you convert your primary residence to an STR, you may lose the exemption.

Senior and Disability Exemptions

Most states offer additional exemptions for seniors (often 65+) and disabled homeowners. These are usually income-qualified.

California Proposition 13

California's Prop 13 (1978) caps the annual increase in assessed value at 2% per year, regardless of market appreciation. Your assessed value resets to market value only when the property is sold or substantially improved. This means:

• Long-held California properties often have assessed values far below market value — and property taxes far below what a new buyer would pay.
• Buyers of California real estate should expect assessed value (and tax bills) to reset to purchase price.
• Prop 19 (2020) restricts parent-to-child transfers that preserve the low assessed value.

How Assessments Are Set

County assessors use several methodologies:

• Sales comparison approach: Compare recent sales of similar nearby properties. Most common for residential.
• Income approach: Estimate value based on rental income potential. Used for commercial and rental properties.
• Cost approach: Estimate land value plus depreciated cost of improvements. Used for unique properties and new construction.

Mass appraisal — applying statistical models to large property portfolios — is the norm for residential properties. Individual property nuances are often missed. This is why appeals succeed.

How to Appeal Your Property Tax Assessment

If you believe your assessed value is too high, you can appeal. The appeal window is typically 30–90 days after the assessment notice is mailed — miss it and you wait until next year.

1. Get your assessment record. Visit the county assessor website and download the property card. Check for errors: square footage, bedroom count, lot size, year built. Clerical errors are surprisingly common and easy wins.
2. Gather comparable sales ("comps"). Find 3–5 recent sales of similar homes in your area that sold for less than your assessed value implies. The assessor's office may provide a sales list, or use a real estate platform.
3. File the appeal. Submit the appeal form with your evidence to the county Board of Equalization (or equivalent appeals board). Some counties allow online filing.
4. Attend the hearing (if required). Present your comps. Keep it brief and factual — assessors are familiar with the process and respond to evidence, not arguments about your mortgage payment.
5. Consider a professional. Property tax appeal attorneys and consultants typically work on contingency (25–40% of the first year's savings). For high-value properties, this can be worth it.

Property Tax Implications for Rental Properties

• Property taxes are fully deductible against rental income (Schedule E for LTR; as a business expense for STR if operated as a business).
• Short-term rental properties may be classified differently by some assessors (commercial vs. residential), potentially changing the mill rate applied.
• Some municipalities add a separate "lodging tax" or "TOT" on top of property taxes for frequently rented properties — distinct from property tax itself.

Tax rules vary significantly by state and locality. Consult a licensed CPA or property tax professional for advice specific to your situation.