Property tax is a levy issued by a government on a person's real or personal property. The property is assessed to give it a value, and then that value is taxed. The amount of tax owed is determined by multiplying the fair market value of the property by the current tax rate.
The amount taxed on a given property may change over time based on a reassessment of the property's value. Typically, property tax is not increased as the value of the home naturally increases; the value of the tax generally remains based on the value of the property at the time it was purchased. Major improvements, however, like building an addition to an existing home, or building a home on a vacant piece of land can trigger reassessment and therefore an increase in the tax levied. Laws vary by jurisdiction; to be sure of those laws that apply to a particular property, one should consult the appropriate regulatory board or a professional in the field.
Property tax payments are due annually in most cases, although the annual amount is frequently divided into periodic installments. This may mean quarterly payments, which is common with commercial property. With homes, it is often charged in monthly installments, which may be added to mortgage payments.
This tax is known by other terms as well, sometimes referred to as a realty tax because it is most often levied against real estate. It is also called an ad valorem tax, which simply means the tax rate is established by the value. There are also different kinds of taxes, such as personal property tax. This is usually assessed and charged separately from taxes on real property and includes personal possessions like automobiles, motorcycles, campers and boats.
Local governments such as cities and counties derive revenue from property tax. This revenue is generally used for government administration and expenses for first responders such as law enforcement officers, firefighters and paramedics. It is also used to fund local courts and helps pay for services including community programs, parks, civic centers, libraries and schools. Quite often, school districts receive a large portion of the revenue.
Typically, the state also collects a portion of the tax revenue. In the United States, the power to levy and collect any type of property tax is considered a state's rights issue. It is not readily recognized as one of the powers of the federal government.
