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I am looking at a property worth $400K but the property tax assessment is $126K and Tax 9K.

How do they calculate the property tax assessment? It is obviously not the property value, then what is it?

  • Can you edit and add country tag. – Dheer Sep 22 '16 at 2:55
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    Ask your Local Authority Having Jurisdiction. – keshlam Sep 22 '16 at 14:36
  • In California, property tax assessments go up a little bit each year (usually), but will jump to the sale price when a house is sold. You may even have to pay an extra amount due to the new assessment in the middle of the tax year. – mkennedy Sep 22 '16 at 21:00
  • You need to specify more than just a country tag, as property tax laws vary by state and sometimes by local jurisdiction as well. – BrenBarn Sep 23 '16 at 6:35
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There are multiple possible reasons why it is off:

  • in this county/states, they might be 'traditionally' off by a significant amount, because that's how it is and nobody is speaking up against it (would you volunteer to pay more?)
  • some states have a 'save-our-homes' law, that limits increases in property tax assessment to so many percent; the idea being that if a property value suddenly shoots up in the neighborhood, you are not supposed to get foreclosed out of your home because you cannot pay the taxes. Note that you lose this protection as a buyer - property tax starts at the real value, so the buyer's taxes could be much higher; only then is the further increase limited.
  • it could be the assessment from the previous year when the house was not yet build/completed?
  • the assessment could be based on the rebuild-value - assume the house disappears/burns down, what would it cost to rebuild it identically - this is not necessarily the price you'd have to pay to buy it (markets are like that)
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Assessments are primarily about values relative to other properties. They need not have any connection with actual values. When it comes to figuring out the tax rate, the municipality adds up all the assessed values, divides the amount of money that they need by that sum, and the resulting percentage is everyone's tax rate. So if all of the assessments are in fact half of market value, changing them to reflect market value would double the sum of the assessments, and halve the tax rate, and you'd still pay exactly the same amount of tax.

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In some places, the assessed value is a specific fraction of the market value. For example, in Downers Grove Township in Illinois, the fraction is one third. There a $126K assessed value would give a market value of $378K, consistent with your estimated market value of $400K.

To give more specific information, we'd need to know a more specific location. Not just country and state, but county and municipality.

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