Understanding Your Property Tax Assessment

When you look at your annual real estate tax bill you may see some terms you do not fully understand and some numbers that appear to make no sense – all seemingly designed to prevent you from fully comprehending your tax liability.

Real estate taxes are sometimes expressed in “mills”; so what is a mill?  In simple terms, a mill equals 1/10th of one cent, or more properly, 1/1000 of a dollar.  A mill is the tax expressed per 1000 currency units.  It is easiest to think of a mill as 1/10th of a cent, however.

Your “assessment” (which seems like it should be the actual fair market value of your property) is usually a much lower amount than the actual value.  This is because real estate is reassessed by the county approximately every 10 years, and since real estate usually goes up in value, assessments tend to be lower than actual values, especially if there has not been a recent reassessment.

Your “assessment” can be adjusted to approximate the current market value of your property by multiplying the assessment by the annual State Tax Equalization Board Common Level Ratio Factor for your county.  (The CLR Factor is designed to adjust your assessment to current market value each year.)  Here is an example from Montgomery County as of 2014:  If your “assessment” is $200,000, this amount would be multiplied by the Montgomery County CLR Factor of 1.78 to reach an approximate fair market value of $356,000.  CLR Factors are published for each county annually.

In calculating your taxes, the county takes your “assessment” and multiplies it by your “millage” (the tax rate expressed in tenths of a cent) to arrive at your actual tax in dollars.  The process is anything but transparent.

So how do you determine if your property assessment is too high?   First, you need to have a good idea of the actual fair market value of your property.  This can be obtained from an appraiser, a real estate agent or from comparable recent sale prices.  If your “assessment” multiplied by the CLR Factor for your county yields a value higher than what you believe to be the actual fair market value, your property is over assessed.  In our example from Montgomery County above, if similar properties are selling for $320,000, the property would be over assessed by approximately 10%.  At some point it makes sense to consider appealing your tax assessment if the assessed value of your property is significantly higher than the fair market value.  Remember, your real estate tax bills come every year, so any savings through a petition for reassessment will be a recurring benefit.

– Kevin Palmer

Posted in Newsletters, Real Estate / Property