• Home / 
  • Learn / 
  • What is Real Estate Taxes?
Dan Green

Dan Green

Since 2003, Dan Green has been a leading mortgage lender and respected industry authority. His unwavering commitment to first-time home buyers and home buyer education has established him as a trusted voice among his colleagues, his peers, and the media. Dan founded Homebuyer.com to expand the American Dream of Homeownership to all who want it. .

Cape Cod Home With Porch - Real Estate Taxes

How We Make Money

Homebuyer.com is your trusted guide to homeownership. Since 2003, our team has offered real-world expertise and advice to tens of millions of U.S. home buyers. Our content stands on its integrity: it's factual, unbiased, and free from outside influences. Read our editorial guidelines.

Homebuyer.com is a mortgage-company-affiliated publisher. We earn compensation when you click specific links on the website, or apply for a mortgage with Homebuyer.com or a partner listed in our comparison tables. Our partners compensate us differently, so we randomize our tables to protect our readers from steering. We may also earn compensation for advertisements on the site, which are indicated clearly. Note that limitations in our software, whether we originate mortgages in your area, and credit factors may affect the offers and comparison tables you see on various parts of this site. We do not include offers for every mortgage product available. Someday, we hope we will.

Trusted Content

Trusted Content

This article was checked for accuracy as of November 22, 2023. Homebuyer.com ensures every piece of information we share reflects the latest in mortgage standards. Learn more about our commitments in our editorial guidelines.

What is Real Estate Taxes?

Real estate taxes, also known as property taxes, are levies imposed by governments on a homeowner. Real estate taxes are based on the home’s assessed value and the tax rate set by local authorities.

A Longer Definition: Real Estate Taxes

Real estate taxes are annual financial obligations that homeowners pay to their local government or governments.

A homeowner’s real estate tax bill is determined by two key factors: the assessed value of the property and the local tax rate.

Property assessments are conducted by local government officials. Assessments are meant to reflect the property’s market value. The assessed value of a home is not “what the home would sell for.” It’s a value used by the municipal government only.

Some homeowners prefer their assessed value to be as low as possible because lower assessments mean less taxes paid.

The second factor that determines the annual real estate tax bill is the local tax rate, which varies based on specific taxes in the community, such as funding for schools, infrastructure, and public services.

Property taxes are a significant source of revenue for local governments and play a crucial role in funding community services and amenities.

Real Estate Taxes: A Real World Example

First-Time Home Buyer Stories: Real Estate Taxes

When afirst-time home buyer purchases a home, the closing process often involves collecting several months of real estate taxes in advance as prepaid expenses.

A home buyer may pay up to 14 months of property taxes upfront at closing to ensure they stay current on their tax obligations while providing a buffer of payments toward the next tax cycle. Most mortgage lenders collect 1/12 of the annual tax bill in each monthly mortgage payment.

Tax bills vary based on a property’s assessed value and the local tax rate, which can fluctuate depending on municipal needs and budgetary decisions. It can be as low as 0.5 percent per year and range as high as 3 percent.

Common Questions About Real Estate Taxes

How are real estate taxes calculated?

Real estate taxes are calculated by multiplying the assessed value of your property by the local tax rate.

Can real estate taxes change?

Yes, real estate taxes can change when there is a reassessment of your property value, or if the local tax rate is adjusted via new or expiring levies.

How often do I pay real estate taxes?

Real estate taxes are typically paid annually, but some areas may allow semi-annual or quarterly payments.

What happens if I don’t pay my real estate taxes?

Failing to pay real estate taxes can result in penalties, interest charges, and in extreme cases, a lien against the property.

Are real estate taxes deductible?

Yes, real estate taxes are often deductible on your federal income tax return, but some limits and rules apply. Ask your accountant for clarification.

Approve Your Mortgage - Instantly!

Wave goodbye to waiting times and say hello to our Immediate Mortgage Approval. It's more than just a mortgage - it's your ticket to home-buying freedom, available anytime you are. With ultra-low rates at your fingertips, the power to secure your future is just a click away. Why wait for office hours? Your home doesn't.

       Real estate taxes, also known as property taxes, are levies imposed by governments on a homeowner. Real estate taxes are based on the home's assessed value and the tax rate set by local authorities.

Find out what you can purchase today

© 2021-2024 All rights reserved. Growella Inc d/b/a Homebuyer. Homebuyer.com is powered by Novus Home Mortgage, a division of Ixonia Bank, NMLS 423065. www.nmlsconsumeraccess.org Homebuyer is located at 230 Findlay Street, Cincinnati, Ohio 45214. Novus Home Mortgage, a division of Ixonia Bank, is located at 20225 Water Tower Blvd. Suite 400, Brookfield, WI 53045. We have no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture, or any other government agency. US Government agencies have not reviewed this information and this site is not connected with any government agency. Equal Housing Lender. Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. The receipt of the application does not represent an approval for financing or interest rate guarantee. Restrictions may apply.