Property Taxes: Calculations & Rates

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  • 0:00 Property Taxes
  • 1:29 By Percentage
  • 2:37 By Tax Rate
  • 3:45 Lesson Summary
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Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Depending on where you live, the property taxes for houses are calculated differently. Watch this video lesson to see how the calculations are made based on some example rates.

Property Taxes

You have just inherited a large sum of money - enough to buy your dream house! You are so excited for it. You have so many plans for the house. You already know what kinds of furniture to get and where to place it. You also have party plans with all your friends and family spanning the next two months. Since you are paying cash for the house, you won't have a mortgage payment!

The house cost you $550,000. Right now, the currently appraised value of the house is what you paid for it, $550,000. Hey, you might even be able to quit your day job. Oh, but wait, there's property taxes. How much would you have to pay?

Property taxes are the taxes that the local government places on real estate. Any business owner or homeowner, even if they own their property outright, will have to pay property taxes. How much the taxes are and how they are calculated depends on where the property is located. Some places calculate the property tax based on a percentage of the assessed value of the property. Other places calculate the property tax based on a tax rate. Let's see how these calculations are made, and then, you can decide whether you can quit your day job or not.

By Percentage

Let's calculate how much our property tax will be if where the house is located uses a percentage of the appraised value of the house to figure out the taxes. To calculate the property tax, we take the appraised value and multiply it by the percentage as a decimal. So, for example, if the property tax is 10 percent, we take our appraised value, $550,000, and multiply it by 0.1, our fraction as a decimal. What do we get? We get $550,000 x 0.1 = $55,000.

Hmm. Doesn't look like you can quit your day job anytime soon. That's a whole lot of property tax, and that is due every year! $55,000 a year is what some people make in a year, and a lot of people don't even make that! Yeah, if this is how they calculate the property tax, then no quitting the day job. You need all the money you can get to pay that every year, and if the appraised value of this house goes up, then your property tax will go up, too!

By Tax Rate

What about property taxes that are calculated by tax rate? Would these be any cheaper? Let's see.

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