What Is Property Tax?

Property tax is a recurring tax assessed by local governments — typically your county, city, school district, and special districts — based on the assessed value of your home. The revenue funds public schools, fire and police departments, road maintenance, parks, and other community services.

Your property tax bill is calculated by multiplying your home’s assessed value by the local millage rate (also called the tax rate). For example, if your home is assessed at $350,000 and your combined local tax rate is 1.1%, your annual property tax would be approximately $3,850, or about $321 per month.

How Property Tax Fits Into Your Mortgage

Most homeowners don’t pay property taxes directly. Instead, your lender collects a portion of the annual tax bill each month as part of your mortgage payment and holds it in an escrow account. When the tax bill comes due — usually once or twice per year — your lender pays it on your behalf.

This means property taxes directly affect your monthly payment and your ability to qualify for a mortgage. Lenders include property taxes as part of your PITI calculation (Principal, Interest, Taxes, and Insurance), and your total PITI factors into your debt-to-income ratio. A higher property tax bill means a higher monthly payment, which could reduce the maximum loan amount you qualify for.

Property Tax Rates Vary Widely

Tax rates differ significantly by state and even by county. Florida’s average effective property tax rate is approximately 0.80%, while states like New Jersey average over 2.4%. On a $350,000 home, that’s the difference between roughly $2,800 per year in Florida and $8,400 per year in New Jersey — a $467 per month swing in your housing costs.

This is one reason location matters so much when budgeting for a home. Two homes at the same price can have very different monthly payments depending on where they’re located.

Reducing Your Property Tax Bill

In many states, you can lower your property taxes through a homestead exemption. In Florida, for example, the homestead exemption reduces the taxable value of your primary residence by up to $50,000, which can save you hundreds of dollars per year.

Property taxes are also partially deductible on your federal income taxes, though the State and Local Tax (SALT) deduction is currently capped at $10,000 per year for combined state income taxes and property taxes.

Key Facts

• Who charges it: County, city, school district, and special districts — you may see multiple line items on your tax bill
• How it’s calculated: Assessed value × local millage rate
• How it’s paid: Usually through your monthly escrow payment as part of your mortgage
• Impact on qualification: Included in your PITI and DTI calculations
• Rate range: From under 0.30% (Hawaii) to over 2.4% (New Jersey) depending on location
• Reassessment: Your local assessor can reassess your home’s value, which may increase or decrease your taxes

Frequently Asked Questions

Are property taxes included in my mortgage payment?

In most cases, yes. Your lender collects property taxes monthly through an escrow account and pays the bill when it’s due. This is required for FHA, VA, and USDA loans. Some conventional loans allow you to opt out of escrow if you have at least 20% equity, but you’d then be responsible for paying the tax bill directly.

Can property taxes change after I buy?

Yes. Your local tax assessor can reassess your home’s value at any time, and tax rates can also change through local government decisions or ballot measures. If your property taxes increase, your lender will adjust your escrow payment during the annual analysis, which raises your monthly mortgage payment — even if you have a fixed-rate mortgage.

How do I appeal my property tax assessment?

If you believe your home is overvalued on your tax bill, you can file an appeal with your county property appraiser’s office. You’ll typically need comparable sales data showing that similar homes in your area are assessed lower. Deadlines vary by county, but most allow appeals within 30 to 90 days of receiving your assessment notice.