Property Tax

Property tax is an annual or semi-annual tax which is paid by someone who owns a piece of real estate or property. The amount is based on local tax rates and the assessed value of the property. Property tax regulations differ on a state by state basis. They are typically administered on the state level by a State Tax Board or Tax Commission and on a local level by county and township assessors. Property taxes are the primary means of revenue income for local governments.

Property Tax Categories

Property taxes are divided two categories:

• Specific – based on a fixed number, standard, or measurement


• Ad valorem – based on a fixed proportion of the property's value.

Property taxes are almost always ad valorem taxes, and require an appraisal in order to gauge the worth of the taxable property. Ad valorem taxes are based on property ownership, and must be paid, regardless of whether or not the property generates income for the owner.

Property Tax Deductions

If you are the legal owner of a property, then you can deduct the amount you pay for property taxes and mortgage interest from your income tax return. You must be legally liable for the property loan or a legal owner in order to make these deductions. If you own a home with another person, and are listed as a legal owner of the property, then you can both claim half of the real estate taxes and mortgage interest paid during the year as a deduction. If you own a second home, it is typically considered to be an investment, thus the property taxes and mortgage interest would not qualify for a deduction.

When buying or selling property, property taxes are divided so that the buyer and seller pay taxes for the part of the year during which they had possession of the home or property. The portion of taxes and mortgage interest paid for the period the property was owned can be deducted from your income tax return.

Property Tax Protection

Home values in certain hot real estate markets across the country can double within a few years time. As a result, if no protection is offered, homeowners can see a huge increase in their property taxes. Some states have addressed this issue by placing protections into play to control increases in property taxes. These protections allow property taxes to increase by only a moderate amount, even if the market is inflating quickly. This safeguards people from being forced out their homes, especially those on a fixed income who would be unable to keep up with the rate of property inflation.

By Doug Vanisky