How Your Property Tax is Calculated

♪ Okay, I want to explain to
you how your property taxes are calculated based on how
much your home is worth. Imagine there is a town
that only has three homes. And they’re each worth
a different amount. The total cost to provide all of
their town’s services is $1000. This is collected
through property taxes. Each home owner pays
property taxes based on how much
their home is worth. So, the value of all the
homes are added up and divided by
the town’s cost. Which gives us
the tax rate. This tax rate is applied
to all the houses to get enough money to pay
for all of the services. So, each home owner pays
according to how much their house is worth. Every four years, the
houses are reassessed. Let’s say all three properties have gone up equally, in value. If we go back
to our calculation, the total cost of services
hasn’t changed, but the total property
value has increased. When this happens there will be a decrease in the tax rate. Now, when we apply that new
rate on all the homes, everyone still pays the same. Let’s recap. One. Property taxes are based
on what a home is worth. If reassessments all
increase equally, then everyone pays
the same taxes as before. Now, let’s say another
four years has gone by and these homes
are reassessed. During this time, the
house on the right became more valuable in the
market than the other two. Okay, so, time for
a little more math. The total value of all
the homes have increased, which means the town has
to calculate a new tax rate. With this new tax rate, the
first two homes will actually pay less than the
home on the right that was reassessed
at a higher value. Since the cost of
services hasn’t changed, the town doesn’t need to
collect more property taxes. However, since property taxes
are based on a home’s value, those taxes could
potentially go up or down, based on the rest
of the homes. So, what happens when the cost
to provide services goes up? Well, it means more property
taxes need to be collected from every home and a new
tax rate is calculated. To get the new rate, we take
that amount that the town now needs and divide it
by all of the property values. The new rate is applied
to all the homes and now everyone has to
pay the new tax amount to continue to fund
all of the services. So, let’s review. One. Property taxes are
based on the value of a home. When homes are
reassessed equally, each home owner will
pay the same amount, proportionately, as before. Two. When homes are reassessed
at different values, each homeowner will
pay a different amount proportionately, based on
how much their home increased in value. Three. When the town’s cost
to provide services increases – a property tax increase – then, everyone
pays their share, proportionately,
across the board. And that explains
the relationship between property value
and property taxes.

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