What is Assessed Value?
Assessed value refers to the dollar value assigned to a home or other real estate properties for tax purposes. Evaluated by local tax authorities, it comprises various factors including the value of comparable properties in the region. Often, the assessed value is calculated as a percentage of the property’s fair market value.
Key Takeaways
- Definition: Assessed value is the dollar value allocated to property for tax purposes.
- Considerations: Factors such as comparable sales in the area, location, and property characteristics are taken into account.
- Differentiation: It’s distinct from fair market value but is usually a percentage of it.
- Versatility: Additionally, states may tax personal property like cars and boats with an assessed value.
Understanding Assessed Value
The assessed value of a property solely determines its applicable property tax, also known as an ad valorem tax. This valuation considers quality, condition, local property values, square footage, home features, and prevailing market conditions. Many of these factors are accumulated from computerized real estate data from the local area.
Role of Local Government Assessors
Local government assessors are designated to evaluate and periodically update a property’s assessed value. Different tax districts might have varying methodologies, but the core process remains similar. Depending on state and locality, assessors may visit properties periodically for evaluation purposes. Property owners have the right to request reassessments should they contest the assigned value. Certain properties may have a lower assessed value due to owner occupancy (a scenario sometimes called a homestead exemption) that subsequently reduces their tax liability.
How Assessed Value is Calculated
Generally, assessed value is derived as a percentage of a property’s fair market value. This percentage can considerably vary. For instance, Mississippi employs one of the lowest rates at 10% for owner-occupied homes, while Massachusetts uses a full 100% rate. Upon determining the assessed value, property taxes can be ascertained.
Relation Between Assessed Value and Property Taxes
Assessed value forms only one component in the property tax calculation. The typical formula used involves the fair market value, assessment rate, and millage rate (tax rate):
Fair Market Value × Assessment Rate × Millage Rate = Effective Property Tax
The millage rate is expressed per $1,000, converting effectively to $1 in tax for every $1,000 of assessed value. For instance, a jurisdiction with a mill rate of 20 translates to 0.02 for the calculation.
Example
Consider a house with a fair market value of $300,000 in an area with a 50% assessment rate and a 20 mill rate. The calculation would render a property tax of $3,000:
$300,000 × 0.50 × 0.02 = $3,000
Personal Property Taxes
Beyond real estate, numerous states impose taxes on certain personal property using an assessed value approach. Taxable personal property might include mobile homes, automobiles, motorcycles, and boats, with taxation rates varying depending on location.
Difference Between Assessed Value and Appraised Value
While both values pertain to the property, assessed value stems from local tax authority determinations for tax purposes, whereas appraised value is professional assessment frequently used in mortgage processes and real estate transactions.
Importance of Assessed Value
Understanding assessed value is crucial as it determines how much property tax you’ll owe. Moreover, in buying scenarios, knowing the assessed value can serve as leverage if the house’s asking price is much higher.
Frequency of Assessed Value Updates
Reassessment frequencies vary by state or jurisdiction, with some areas adjusting annually and others periodically. For specifics, contact your local tax office.
The Bottom Line
Assessed value is the figure assigned to real estate by local tax authorities and is instrumental in computing property taxes owed by homeowners. Often, it’s a portion of the property’s fair market value.
Related Terms: fair market value, ad valorem tax, property appraisal.
References
- Department of Revenue, State of Mississippi. “Ad Valorem Tax”.
- State of Massachusetts. “RE18RC07: Property Assessments, Valuation and Taxation”.
