From Spotlight: Top Home Finance Tips from a Top Money Coach

Tips for Managing Property Taxes and Finding Tax Rates

Understand how property taxes affect your budget when you’re shopping for homes.

Sold sign in front of a home
Image: ArturVerkhovetskiy/Depositphotos

If you’re in the market for your first home, you’re probably trying to find your property tax rate and calculate what the property tax is going to cost you. Chances are you’ve considered how property taxes are going to impact the amount of home you can (or can’t) afford.

Property taxes are taxes that are assessed on real estate and are typically based upon the value of the property (land included) that you own. They’re assessed by the governing authority of the jurisdiction where the home is located and can vary greatly depending upon the state, county, and school district lines you live within.  They typically go towards the creation of roads, school or park maintenance, trash collection, and other similar needs.

Where to Find Local Property Tax Rates

Property rates vary significantly across the country, so instead of using a generalized assumption, it’s best to do your research to narrow in on what to expect for your area. A simple Google search of the name of the county or city and state and the term “property tax rates” should provide you with the rate you can anticipate paying.

How Property Taxes are Calculated

The amount of property taxes you’ll pay is determined by multiplying the current assessed value of the property by the property tax (mill) rate. Keep in mind that assessed value is solely used to calculate taxes and is usually lower than appraised value. Appraised value is an estimate of what sellers will pay for the property.

If you’re not up for calculating and researching rates in your area, you can typically find a good estimate of what you’ll pay through home listings or by using an online home affordability calculator.

You can also explore average county tax rates and annual property tax amounts around the country by plugging your city or ZIP code and an estimated assessed value into this calculator.

Considerations for Your Budget

Property taxes are important to keep in mind as a part of your home buying budget. Due to the huge range you can experience, be sure to factor this into your expenses early in your shopping. 

For example, a home in San Diego, Calif., may cost $800,000 with a 1.2% property tax rate, but a similar home in McKinney, Texas, could cost $400,000 with a 2.66% property tax rate. You’ll likely pay more in property taxes in McKinney than you’d pay for a home in San Diego at double the price.

However, it’s important to note that putting down 20% and making payments on a mortgage on a home valued at $400,000 versus one valued at $800,000 will look significantly different when it comes to your overall budget. So while some areas may have higher property taxes, if their homes are priced more moderately, you’re likely looking at saving more money on an overall basis.

Keep in mind that in general, property taxes tend to increase over time, so allow for some wiggle room in your budget when it comes to your housing budget; don’t tap yourself out by spending the max early on.

Federal Deduction for Property Taxes

You’ll be able to deduct up to $10,000 in state and local taxes combined if you itemize. 

Property taxes may get a bad reputation, but the fact is they can go towards supporting some substantial needs in your community and they may provide you with some tax savings depending your circumstances. They’re going to be a factor no matter where and what type of home you purchase, so ensure you evaluate your budget and determine how they impact the amount of home you can afford. 

Author photo of Mary Beth Storjohann
Mary Beth Storjohann

Mary Beth Storjohann founder of financial planning company Workable Wealth, makes frequent appearances on NBC as a financial expert and is a contributor to major media outlets such as “Forbes” and “U.S. News & World Report.”