Introduction
At Ownwell, we talk every day with homeowners who want to know what their property taxes are based on and why the number keeps climbing. Your property tax bill really comes down to three things. They're your home's assessed value, the exemptions you qualify for, and the local tax rate.
Understanding those inputs is the first step toward making sure you are not overpaying. In this guide, we explain how each piece works, how your value gets set, and how to check your bill.
Key Takeaways
Property taxes are based on three inputs: your assessed value, any exemptions, and the local tax (millage) rate.
Assessed value is the government's value for tax purposes, and it is often different from market value.
Most assessments come from mass appraisal, so errors are common.
Exemptions reduce your taxable value before the rate is applied.
You can check and challenge your assessment, and most homeowners never do.
What Are Property Taxes Based On?
Property taxes are based on your property's assessed value multiplied by the local tax rate, minus any exemptions you qualify for. They are an ad valorem tax, Latin for "according to value," so the value assigned to your home drives what you owe.
Three inputs determine the final number:
Assessed value: the dollar value your local government assigns to your property for tax purposes.
Exemptions: reductions that lower the portion of value subject to tax.
Tax (millage) rate: the combined rate set by the taxing bodies in your area.
These taxes fund local services, and they carry most of the load. Property taxes are the largest local tax source, accounting for 70% of local tax collections nationally in fiscal year 2023. Research on how local governments raise revenue found property taxes are the largest tax revenue source in 93% of U.S. localities.
The scale is personal, too. The national median property tax paid by U.S. homeowners is $3,209 per year, though the figure swings widely by location. For state-level numbers, see our breakdown of property taxes by state.
The Property Tax Formula (With a Real Example)
Here is the formula we use: Taxable Value (your assessed value minus exemptions) multiplied by the combined tax rate equals your annual property tax.
The numbers below are hypothetical and illustrative, not any state's current law. Confirm your local assessment ratio, exemption amounts, and tax rate with your county.
Input | Amount |
|---|---|
Market value | $400,000 |
Assessment ratio (hypothetical) | 100% |
Assessed value | $400,000 |
Exemptions (illustrative) | $40,000 |
Taxable value | $360,000 |
Combined tax rate (hypothetical) | 2.0% |
Annual property tax | $7,200 |
How Much Are You Over Paying?
How Your Property's Assessed Value Is Determined
Assessed value is the dollar figure your local government assigns to your home for taxation. It is the biggest variable in your bill because the rate and exemptions both apply to it.
Because it carries so much weight, it helps to know how that number is produced. Below, we explain how assessed value differs from the other values you will hear about and how assessors use the mass-appraisal process. For a deeper primer, see our explainer on what a property tax assessment means.
Assessed Value vs. Market Value vs. Appraised Value
These three terms sound alike and are often confused. Your county sets assessed value for tax purposes. Market value is what a buyer would likely pay today. Appraised value is a professional's opinion of value, often ordered by a lender during a sale or refinance.
Term | What It Means | Who Sets It | How Often It Updates |
|---|---|---|---|
Assessed value | Value used to calculate your tax bill | County or local assessor | Annually to every few years |
Market value | Likely sale price in current conditions | The open market (buyers and sellers) | Continuously |
Appraised value | Professional opinion of value | Licensed appraiser | Per transaction (sale or refinance) |
One wrinkle: some places tax a fraction of market value, and others tax the full value. That fraction is the assessment ratio, and it varies, so confirm your local ratio with your county.
How Assessors Calculate Value (Mass Appraisal)
Most homes are valued through mass appraisal, where statistical models value many properties at once rather than through individual inspections. Assessors lean on three standard approaches:
Sales comparison approach: compares your home to recent sales of similar properties.
Cost approach: estimates what it would cost to rebuild, minus depreciation.
Income approach: values a property by the rental income it could generate.
Because models work at scale, they often miss the specifics. Condition, neighborhood nuance, and recent changes to your home can all slip through, which is where valuations drift from reality. Across more than a million appeals we have processed, these gaps show up again and again.
Reassessment frequency also varies, from annual updates to every few years. A long gap between updates can produce a sharp jump in a single year.
Understanding Tax Rates, Millage, and Local Levies
The rate side of the equation is usually expressed in mills. One mill equals $1 of tax per $1,000 of taxable value, so 20 mills equals a 2.0% rate. Your bill rarely comes from a single rate.
Instead, multiple taxing units stack together: the county, the city, the school district, and special districts such as water or fire. You pay the combined total.
That stacking explains why bills vary so much between locations. Local budgets, home values, and how heavily an area leans on property tax all push the rate up or down.
A 50-state property tax study confirms property taxes are the largest revenue source for local governments. It also found that effective rates vary dramatically across more than 100 U.S. cities.
How you pay depends on your mortgage. If you own your home outright, you pay the county directly on its due date. If you have a mortgage, your lender usually collects a portion each month and pays the bill from an escrow account.
Terms like real estate tax and property tax often refer to the same thing, which we cover in real estate tax vs. property tax. Rates also change yearly, so always confirm the current figures for your county.
How Exemptions Lower What You Owe
Exemptions reduce your taxable value before the rate is applied. They shrink the base the rate multiplies, lowering your final bill without changing the rate itself.
Several types are common, though names and amounts vary by state and county:
Homestead exemption: for your primary residence.
Senior exemption: for qualifying older homeowners.
Veteran exemption: for eligible service members and veterans.
Disability exemption: for homeowners with qualifying disabilities.
Many of these are not applied automatically, so you often have to file to claim them. For example, a $40,000 exemption on a $300,000 taxable value removes $40,000 from the base the rate multiplies, trimming your bill.
We file and manage property tax exemptions for homeowners, and in some states we can do so retroactively. Confirm the exemptions and amounts available to you with your county.
Why Your Assessment Might Be Wrong and Its Impact on Your Finances
Assessments are estimates, and estimates are frequently wrong. Mass appraisal plus stale or incorrect data drives a lot of over-assessment, and the cost lands squarely on you. According to our National Homeowner Survey, 74% of homeowners have never appealed, and 57% didn't know they had the right.
Our operations show a clear pattern. Across more than a million processed appeals, the most common assessment errors are in property characteristics. We cover these in our guide on how to lower your property tax assessment, including wrong square footage and outdated condition.
The problem is not random. Assessment regressivity research from a University of Chicago researcher analyzed 2007-2016 data. It found that homes in the lowest price decile faced an assessment ratio about twice that of top-decile homes in the same jurisdiction.
The cost of doing nothing adds up. Our Texas-specific Texas Protest vs. Non-Protest Study found that, across 17 Texas counties, homeowners who did not protest left about $3.3 billion in potential property tax savings unclaimed over 2023 to 2025, including $1.2 billion in 2025 alone.
A small over-assessment compounds every year it goes unchallenged, which is one of the clearest reasons to appeal your assessment.
How to Check Whether You're Overpaying
You can test your own assessment with a few practical steps before deciding to challenge it:
Pull your property record card and check for factual errors in square footage, lot size, bed and bath count, and condition.
Compare your assessed value to 3-5 recent comparable sales in your neighborhood.
Compare your assessment to similar neighboring homes to spot unequal appraisal.
Run a gut check: would a buyer actually pay what your county says your home is worth?
If several of these checks point high, you likely have a case worth challenging. This is the same diagnostic we run automatically for customers.
Want to Try What Made Ownwell Famous?
How Ownwell Serves Property Owners
Ownwell manages the end-to-end appeal and exemption process. We gather the evidence, file the paperwork, negotiate with the county, and represent you through hearings when needed.
Our results are specific. 88% of our customers receive a reduction, and our customers see average annual savings of $774. You only pay if you save, with no upfront cost.
When you are ready, you can file a property tax appeal with us and review our contingency-based pricing before you commit to anything.
Frequently Asked Questions
What are property taxes based on?
Property taxes are based on your home's assessed value multiplied by your local tax rate, minus any exemptions you qualify for.
How is my home's assessed value determined?
Most homes are valued through mass appraisal, a statistical process we explain in the section on how assessors calculate value.
What's the difference between assessed value and market value?
Assessed value is the figure your county uses for taxes. Market value is what a buyer would likely pay today, as shown in our comparison table above.
Can I challenge my property tax assessment?
Yes. If your records contain errors or your value looks high against comparable homes, use the steps in the section on checking whether you're overpaying.
Why did my property taxes go up this year?
Usually, either your local rate rose, your assessed value increased after a reassessment or market shift, or an exemption was removed from your account.
