Property Taxes 101: What They Mean for Homebuyers

What Is Property Tax?

If you own real estate or personal property, you likely pay property taxes. But what exactly is property tax, and how does it work? If you're a first-time homebuyer, understanding property tax can help you plan for the costs of owning a home.

Property tax is a type of ad valorem tax. This means it’s based on a percentage of your property’s assessed value, not what you originally paid or how much you owe on your mortgage. In the United States, property taxes are levied by cities, towns and counties to generate revenue, often to support local services and infrastructure.  

Property taxes are typically billed once or twice a year. The rules determining how much you owe depend on where you live because property tax rates, exemptions and the appeal process are set by local governments.

For example, California bases property taxes on a home's last assessed value and are capped at a maximum increase of 2% each year. This is because of a unique law in the state called Proposition 13. Other states have different laws for their property taxes at different levels of their government.

 

What is the Difference Between Property Tax & Real Estate Tax?

The terms “property tax” and “real estate tax” are sometimes used interchangeably, but they aren’t quite the same thing. Real estate tax refers specifically to taxes on real property, including land and anything permanently attached to it, like a house or garage. 

On the other hand, property tax covers real estate and tangible personal property or movable items. This might include vehicles, boats, business equipment or livestock in some states.

In some jurisdictions, local government taxing authorities assign separate property tax rates for real estate and personal property. While they might be on the same tax bill, they are usually listed as different line items.  

 

Who Pays Property Taxes? 

Property taxes are paid by anyone who owns real property. This includes homeowners, landlords, real estate investors, farmers, corporations and real estate investment trusts (REITs). Essentially, if your name is on the deed, you’re likely responsible for paying property taxes. 

Additionally, property tax liability stays with the property itself. If a home is sold, the new owner becomes responsible for any remaining or prorated taxes due after the sale closes.  

Even if you inherit a property or receive it as a gift, you’ll still be responsible for any future property taxes. Failure to pay these taxes can result in liens or foreclosure. 

 

How to Calculate Property Taxes

As mentioned, the process for calculating your property taxes can vary considerably based on your location. It's important to look up the specific property tax process in your area.

Generally, property taxes are based on your property’s current market value. To estimate the amount of property tax you’ll owe, follow these steps: 

1. Find the assessed value of the property. This is set by your county assessor and can be found on your local tax authority’s website. Keep in mind that if home values in your area go up, your assessed value might increase too, even if your tax rate stays the same. 
2. Multiply the assessed value by your local tax rate. Rates vary by city or county, so check your local government’s online tax portal. 
3. Subtract any exemptions you qualify for. For example, California offers exemptions for homeowners, veterans, nonprofit or religious organizations and public schools. 
4. Apply the millage rate. A millage rate is the amount you pay in tax for every $1,000 of your property’s taxable value. For example, if your property’s taxable value is $350,000 and your local millage rate is 10, your property tax would be $3,500.

These steps can give you a good estimate, but for an exact amount, always check your county’s property tax bill or website.

When Do Property Taxes Get Paid?

In many places, property taxes are billed annually, but the exact due dates differ by location. For example, property taxes for the 2024-2025 tax year in California are split into two installments: 

• Nov. 1: First installment due
• Dec. 11: First installment becomes delinquent if unpaid by 5 p.m.
• Feb. 1: Second installment due
• April 10: Second installment becomes delinquent if unpaid by 5 p.m.

If you have a mortgage, your lender may collect an estimated monthly property tax amount and pay the bill for you through an escrow account. This helps homeowners avoid missed payments and penalties. 

 

What Do Property Taxes Pay For?

Property taxes are one of the primary ways local governments fund essential services. When you pay your property tax bill, that money stays in your community and helps support the resources you use every day.

Here’s where revenue from property taxes might go:

• Public schools, community colleges and educational programs
• Police, fire departments, EMTs and other public safety workers
• Roads, highways, bridges and sidewalks
• Parks and recreation, libraries and social services
• Street cleaning and storm water management 

 

Are Property Taxes Deductible?

Property taxes may be deductible on your federal income tax return, but it depends on how you file. If you itemize deductions, you can deduct what you paid in state and local taxes (SALT) up to a certain limit. 

As of 2025, the SALT cap is $10,000 for single filers and $5,000 if married filing separately. This includes property taxes, along with either income taxes or sales taxes, but not both. 

To qualify, the property tax must be based on the assessed value of the property and applied uniformly, meaning it’s charged at a similar rate for similar properties in your area. These funds must also support public services rather than providing a personal benefit for you. 

Not all charges on your property tax bill are deductible. You can’t deduct: 

• Taxes on property you don’t own
• Unpaid property taxes
• Special assessments for new sidewalks, sewer lines or water and sewer systems
• Fees for trash collection or water
• HOA (homeowner association) dues or transfer taxes on the sale of a home

Some states also offer property tax exemptions. For example, California homeowners may qualify for a $7,000 reduction in their home’s taxable value if the home is their primary residence as of January 1st each year.  

Tax laws can change year to year, so it’s smart to consult a tax professional to understand what deductions or exemptions apply to you.