Owning real estate in the United States involves more than just the property's market value. Among the most significant ongoing expenses is the property tax—a crucial factor that prospective buyers must evaluate before making an investment.

What Are Property Taxes?

Property taxes are levies imposed on real estate by local governments to fund essential public services. These include school systems, law enforcement, fire departments, road maintenance, and other municipal operations. The quality of these services often correlates with the area's property tax rates.

How Property Taxes Are Calculated

The tax amount depends on two primary components:

1. Assessed Value: Local assessors determine this figure by evaluating the property's market value, square footage, location, and other characteristics. Most jurisdictions reassess values periodically (annually or biennially).

2. Tax Rate (Mill Rate): Expressed in percentages or "mills" (1 mill = $1 per $1,000 of value), this rate is set by local governments based on budgetary requirements. For example, a 1.5% rate on a $300,000 home would yield $4,500 annually.

Regional Variations and Exemptions

Property tax rates differ substantially across states and municipalities. Texas, for instance, has no state income tax but imposes higher property taxes (averaging ~1.8%), while Hawaii's rates are typically below 0.3%.

Many localities offer exemptions or reductions for:

- Primary residences (vs. investment properties)
- Senior citizens
- Veterans
- Agricultural land

Financial Planning Considerations

Prospective buyers should:

- Research local tax rates before purchasing
- Account for potential reassessment increases
- Verify eligibility for exemptions
- Factor taxes into long-term affordability calculations

While property taxes contribute to community infrastructure and services, understanding their structure helps homeowners budget effectively and avoid unexpected financial burdens.