Student Question - Property Tax Calculation

Hi Dr. Hansz,

Can you please explain how the answer to chapter 4, number three in the short answer question is $415,600? How do you get to this answer? Thank you in advance for your help.

Regards,

LaTanya Morgan-Diaz


RESPONSE:

Hi LaTanya,

I think you were referring to question number 2 from the Chapter 4 short answer questions. The question is,

2. What is the implied market value of a property that qualifies for a $25,000 homestead exemption in jurisdiction that levies a 24.5 mill tax rate if the annual property tax bill for the property is $9,569.70? Note: I think we can assume, because it was not specified in the question, that assessed value is 100% of the market value estimate (like it is in Texas).

Let me give you another example and see if you can figure out the answer to question 2 base on the example below (hint just work backwards):

A property has an ad valorem value of $475,0000 in a state that requires a 50% assessment ratio (Texas's assessment ratio is 100% but let's use 50% to make it interesting). The property owner qualifies for two exemptions. First, the owner qualifies for a homestead exemption of $25,000. Second, the owner also qualifies for an additional $12,000 exemption because she is over the age of 60. The property tax rates for the jurisdiction are as follows:

County tax 4 mills

School district 11 mills

Hospital 2 mills

Fire department 1 mill

Total tax rate 18 mills or .018 (18/1000)

STEP 1: Calculate the assessed value.

Ad valorem value x assessment ratio = assessed value

$475,000 x .50 = $237,500

STEP 2: Calculate the taxable value.

Assessed value - exemptions = taxable value

$237,500 - ($25,000 + $12,000) = $200,500

STEP 3: Calculate the property tax due.

Taxable value x millage rate = property tax due

$200,500 x .018 = $3,609.00