Property taxes are annual taxes levied by local governments on real estate. They’re one of the ongoing costs of homeownership that many first-time buyers underestimate — and in some markets, they’re substantial enough to meaningfully affect the affordability of a home.
How property taxes are calculated
Property tax = assessed value × mill rate (tax rate). The assessed value is determined by your local tax assessor — often a percentage of the market value (varies by jurisdiction). The mill rate is set by local government based on funding needs. One mill equals $1 per $1,000 of assessed value. A home assessed at $300,000 with a 20 mill rate pays $6,000/year in property taxes.
How much do property taxes vary?
Significantly. States like New Jersey, Illinois, and Connecticut have average effective rates above 2% of home value — a $400,000 home could mean $8,000+/year in property taxes. States like Hawaii, Alabama, and Colorado have rates below 0.5%. On the same $400,000 home, that’s under $2,000/year. Location dramatically affects the true cost of homeownership.
What property taxes pay for
Property taxes fund local services — public schools (often the largest portion), fire and police departments, roads and infrastructure, parks and libraries, and local government operations. In areas with high property taxes, those taxes often fund high-quality public schools — a relevant consideration for families with children.
Can you appeal your property tax assessment?
Yes. If you believe your home has been over-assessed, you have the right to appeal. Gather recent comparable sales of similar homes in your area. File an appeal with your local assessor’s office within the appeal window (typically 30–90 days after assessment notices are mailed). Many homeowners who appeal successfully reduce their assessment — and their annual tax bill.