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How Are Property Taxes Calculated

by | Apr 5, 2016 | Commercial Real Estate, Real Estate Law

Millions of owners deal with property taxes every year. In the majority of cases, the tax bill arrives, is reasonable, and property owners simply pay it and move forward with their day. Yet, in some cases, property taxes are being overcharged. If you are a property owner and you have no idea how property taxes are calculated, it’s a good idea to have a general understanding so that you will be aware of any significant mistakes made in the amount prior to submitting your next payment.

Property taxes are a major source of income for both the state and federal governments. In most instances they come in the form of a percentage with the necessary amount of tax revenue determined by different boards, legislatures, councils, etc. They hold a budgetary hearing at which they decide the specific amount of revenue that is necessary to cover governmental expenses and avoid financial challenges for the coming year. These funds typically cover: emergency services, education, transportation, parks, libraries and various recreational activities.

Property taxes are calculated using the mill levy in combination with the assessed property value. The mill levy is the tax rate that is levied on the property value. One mill represents one tenth of one cent. So for $1,000 of assessed property value, one mill is equivalent to one dollar. Calculations are completed in each tax jurisdiction and then the levies from the various jurisdictions are combined to determine the total mill rate for the region as a whole. Generally speaking, the city, county and school district hold the authority to levy against properties within their area. Each of the separate entities completes their calculations for the required mill levy and they are then taken and added up to come up with the total mill levy.

For example:

Consider a property with an assessed value of $100,000,000. The county decides that $1,000,000 in tax revenue is necessary to handle the budget. The mill levy would be $1,000,000 divided by $100,000,000, which equals 1%. In this same area, the city calculated mill levy at 0.5% and the school district calculated mill levy at 3%. So the total mill levy for the region would be 4.5%.

The bottom line is that the calculation of property taxes can be confusing for southern California property owners. Ensure that you are paying the appropriate amount in property tax by understanding the basics. If you have additional questions about your southern California real estate, get in touch with the experienced southern California real estate lawyers at The Law Office of the Law Office of Ernesto Aldover.