Real estate tax assessments are based upon the Assessed Value which may be based on the market value of a property depending upon the local municipalities rules. However, the assessment value should be based on the Highest and Best Use, even if it's not the present use of the subject property. A residential house can be taxed as a commercial property if it's located in an area of businesses. By being in a business location, this could make the H&B Use of the subject property a commercial use. An apartment building can be taxed as a condominium building because it's located in an area of condo buildings. You may come across the term depth tables which are used by tax assessors. They're not accurate enough to estimate market value for an appraiser to use them.
How can you appeal your property tax assessment? In most areas real estate taxes are based on an ad valorem ( "according to value") assessment of your property's value. If you believe the assessed value is incorrect, then you may have the right to appeal the tax assessor's valuation. A qualified appraiser can give you an independent opinion of value to assist you with your appeal to the tax assessor.
The building department is a separate entity from the tax department. As a result, the building department doesn't care how your property is taxed, they only care that it meets all of the local building code requirements.
I've seen many cases where single family, or small multi-family dwellings, have a higher tax rate than they should. This is because these buildings have illegal apartment units. For example, let's say you had a single family house and you made an apartment in the basement and rented it out. Even though the property doesn't have the legal zoning for two apartments, your property can still be taxed as a two-family building. A two-family tax base will generally be a higher tax rate than a single family. And to make matters even worse, the building department will give you a building code violation for having the illegal, second apartment! Just because you're taxed as a two-family, it doesn't mean that the apartment suddenly becomes a legal rental unit. You don't have the right to go ahead and rent this extra apartment out to someone. It's still an illegal apartment until you have a building inspector sign-off on it as a safe and acceptable living area that meets all of the local regulations. The building department is a separate entity from the tax department. As a result, the building department doesn't care how your property is taxed. They only care that your property meets all the local building code requirements.
The Effective Tax Rate is the rate based upon the full amount of the estimated market value of the property. This rate is not based on the Assessed Value of the property. It's similar to the Effective Interest Rate example that we discussed. (See section Effective Interest Rate Example. The Effective Tax Rate is the actual amount the owner is paying in taxes, in relation to the market value of his property. The assessed value of a property is usually less than the actual market value of the property. To calculate the effective tax, divide the taxes paid for the property by the market value of the property. For example, let's say a house is worth $185,000 and the current taxes on the property were $6,750 per year. The effective tax rate would be:
$6,750/$185,000 = 0.04 or 4%
The actual real estate taxes that a property owner pays are usually based on the assessed value of the house. Actual real estate taxes are not normally based on the actual market value. To calculate the actual tax rate, multiply the assessed value for the property, by the tax millage rate or "mill rate" for the property. For example, let's say a house is assessed for $147,000 and the current mill rate for the yearly tax on the property is $53 per $1,000 of assessed value. The actual tax rate per year would be:
$147,000/$1,000 = 147
147 x $53 = $7,791
The Assessed Value Ratio is the ratio between the assessed value amount of the subject property and the current market value amount. It's the percentage that the owner is paying in taxes, as compared to the market value of his property. To calculate the assessed value ratio, divide the assessed value of the property by the current market value of the property. In our example above the assessed value is $147,000 and the current market value for the property is $185,000. The assessed value ratio would be:
$147,000/$185,000 = .79 or 79%