How Property Taxes Work — A Complete Guide

What Are Property Taxes?

Property taxes are annual taxes levied by local governments on real estate. They are the primary funding source for local services including public schools, fire departments, police, road maintenance, and local government operations. Unlike federal income taxes, property taxes are set and collected locally — meaning rates vary dramatically from county to county.

How Property Taxes Are Calculated

Your property tax bill is determined by two factors:

Property Tax = Assessed Value × Tax Rate (Mill Rate)

Assessed value is determined by your local tax assessor, usually based on the property's fair market value. Some states assess at full market value, while others use a fraction (e.g., 50% in some states).

Tax rate (mill rate) is set by local taxing authorities. One "mill" equals $1 of tax per $1,000 of assessed value. A 20-mill rate means you pay $20 per $1,000 of assessed value.

What Is an Effective Tax Rate?

The effective tax rate is the actual percentage of a home's market value paid in property taxes. It accounts for all the complexities of assessment ratios, exemptions, and multiple taxing jurisdictions. On PlainPropertyTax, we calculate it as:

Effective Rate = Median Taxes Paid ÷ Median Home Value

This is the most useful comparison metric because it normalizes across different assessment practices. The national average effective rate is approximately 1.1%.

Why Do Rates Vary So Much?

Property tax rates vary dramatically across the US for several reasons:

Local funding decisions: Communities that fund more services locally (schools, parks, emergency services) tend to have higher rates.
State policies: Some states limit property tax rates by law. Others have no income or sales tax and rely more heavily on property taxes.
Home values: Areas with very high home values can collect more revenue at lower rates. Rural areas with low values may need higher rates.
Assessment practices: How often properties are reassessed (annually vs. every few years) and whether there are assessment caps affects bills.

Where Do Property Tax Dollars Go?

On average across the US, property tax revenue is distributed roughly as follows:

Public schools (45-55%): The largest share funds K-12 education.
County/city government (20-25%): General operations, courts, records.
Emergency services (10-15%): Fire, police, EMS.
Infrastructure (5-10%): Roads, water, sewage.
Special districts (5-10%): Libraries, parks, hospital districts.

About Our Data

PlainPropertyTax uses data from the U.S. Census Bureau American Community Survey (ACS) 5-Year Estimates. The ACS surveys millions of households annually and reports median property taxes actually paid by homeowners in every county. This self-reported data captures real tax bills including all exemptions and deductions homeowners receive.