How Property Taxes Are Calculated: The Complete Formula Explained

Property Tax = Assessed Value × Tax Rate (Mill Rate). That’s the formula. But both variables have layers underneath — and understanding them helps you predict your bill, evaluate properties before you buy, and identify when something has gone wrong.

Variable 1: Assessed Value

Assessed value is what your local assessor determines your property is worth for tax purposes. It is not always the same as market value. Many states assess at a fraction of market value called the assessment ratio. If your home has a market value of $400,000 and your state assesses at 80%, your assessed value is $320,000 — and that’s what the tax rate is applied to.

Exemptions Are Subtracted

After the assessed value is determined, any applicable exemptions — homestead, senior, veteran — are subtracted. The result is your taxable assessed value — the number the tax rate is actually applied to.

Variable 2: The Tax Rate (Mill Rate)

The tax rate — often expressed as a mill rate — is set by the various taxing bodies covering your property. One mill equals $1 per $1,000 of assessed value. Your total rate is the sum of all individual rates from county government, municipality, school district (often 50–70% of your total bill), community college, park district, library district, and any special districts. Two properties across the street from each other but in different school districts can have dramatically different bills on identical homes.

A Full Example

Market value: $350,000 | Assessment ratio: 80% | Assessed value: $280,000 | Homestead exemption: $25,000 | Taxable assessed value: $255,000 | Total mill rate: 24 mills (2.4%) | Annual property tax: $255,000 × 0.024 = $6,120

Why Your Bill Changes Year to Year

• Reassessment of your property to a higher value
• Expiration of a tax cap or phase-in
• Loss of an exemption you forgot to re-apply for
• A taxing body increasing its levy — a school district passing a referendum, for example

Understanding what drove a change tells you whether it’s challengeable. If your assessment increased dramatically, that may be worth appealing. See our complete property tax appeal guide.