Finance

How Property Tax Is Calculated — State Rates, County Levies, and Assessed Value Explained

Learn how property tax is calculated in 2026. See state effective rates, mill levies, and monthly escrow on a $400k home. Free property tax calculator.

By Daily Calcs Team , Independent Editorial Research · Reviewed by Daily Calcs Editorial , Calculator Methodology Review · Published June 21, 2026 · Updated June 28, 2026 · 9 min read

Direct Answer

Property tax is calculated as assessed value * combined tax rate from every jurisdiction that taxes your address — county, city, school district, and special districts. On a $400,000 home at a 1.0% effective rate, expect roughly $4,000 per year or $333 per month in escrow. Effective rates range from 0.3% in low-tax states to 2.5%+ in New Jersey and Illinois. Assessed value, homestead exemptions, and mill levies all change the final number — two homes in the same ZIP code can have different bills.

Use the Property Tax Calculator to estimate annual and monthly property tax by state and county.

Last verified on: June 28, 2026

Editorial note: Property tax rules vary by state, county, and exemption eligibility. This guide explains the calculation method — not your specific bill. Verify figures with your county assessor before budgeting.

Research method: Daily Calcs modeled property tax scenarios using configured effective rates, assessment ratio defaults, and county overrides verified June 22, 2026.

The Property Tax Formula

Every U.S. property tax bill follows the same core logic:

Annual property tax = Taxable assessed value * Combined tax rate
Monthly escrow = Annual property tax / 12

Where:

  • Taxable assessed value = market value * assessment ratio - exemptions
  • Combined tax rate = sum of all mill levies / 1,000 (or expressed as an effective percentage)

The complexity is in how each state sets assessed value and which exemptions apply.

Effective Rate Examples by State Tier

TierExample statesEffective rateAnnual tax on $400kMonthly escrow
Low (under 0.6%)HI, AL, CO, WV0.3%-0.6%$1,200-$2,400$100-$200
Moderate (0.6-1.2%)TX, GA, NC, AZ0.6%-1.2%$2,400-$4,800$200-$400
High (1.2%+)NJ, IL, NY, CT1.2%-2.5%$4,800-$10,000$400-$833

Texas has no state income tax but relatively high property tax rates. New Jersey has both high property tax and state income tax.

What Drives Your County Rate

School districts

School funding is the largest line item in most property tax bills — often 40% to 60% of the total. Bond elections for new schools or renovations can add 5 to 20 mills overnight.

Special districts

Metro transit, flood control, hospital, and MUD (Municipal Utility District) levies stack on top of county and city rates. In Texas Harris County, MUD districts alone can add hundreds per month.

Homestead exemptions

Most states offer a homestead exemption for primary residences — a fixed dollar amount or percentage reduction in taxable value. Florida offers up to $50,000 on the first $75,000 of assessed value. Texas offers a $100,000 school exemption for qualifying homesteads as of recent reforms.

Assessed Value vs Market Value: Worked Example

StepAmountNotes
Market value$400,000Appraised or purchase price
Assessment ratio (80%)$320,000State-specific ratio
Homestead exemption-$25,000Primary residence reduction
Taxable assessed value$295,000Basis for mill levy calculation
Combined rate (1.1% effective)* 1.1%County + school + special
Annual property tax$3,245~$270/month escrow

Property Tax in Your Mortgage Payment (PITI)

Lenders collect property tax monthly through escrow and pay the county on your behalf. Escrow analysis happens annually — if your bill rises, your monthly payment adjusts even if your interest rate is fixed.

Property tax is often the second-largest PITI component after principal and interest in high-tax states. On a $400,000 Colorado home, property tax might be $183/month while P&I is $2,022 — manageable. On a $400,000 New Jersey home, property tax could exceed $800/month — dominating the payment.

What This Means for Your Monthly Payment

Property tax flows into escrow and adjusts your total housing payment even when your mortgage rate is fixed. Translate the annual bill into monthly impact:

Home value1.0% effective rate1.5% effective rate2.0% effective rate
$250,000$208/mo escrow$313/mo$417/mo
$400,000$333/mo$500/mo$667/mo
$600,000$500/mo$750/mo$1,000/mo

On a $400,000 home, moving from a 1.0% county to a 2.0% county adds $334/month to PITI — equivalent to roughly 0.75% on your mortgage rate in payment impact. Run your address in the Property Tax Calculator before comparing homes across county lines.

Property Tax Estimation Checklist

  • Look up assessed value and exemptions on your county assessor website
  • Identify all taxing jurisdictions — school, city, MUD, flood control
  • Enter home value and county in the Property Tax Calculator
  • Apply homestead exemption if the home will be your primary residence
  • Budget 2-5% annual increases for most markets; more after bond elections
  • Compare effective rate to Mortgage Payment by State rankings
  • Add monthly escrow to P&I in the Mortgage Calculator for full PITI
  • Re-check after purchase — many states reassess to sale price in year one

Assumptions and Limitations

Effective rates are averages — individual parcels vary by school district, special districts, and exemption eligibility. New purchases in Texas and other reassessment states often see a significant first-year jump when the county resets to market value.

The calculator uses configured geo data defaults where county overrides exist. It does not replace your county assessor’s bill, escrow analysis, or tax advice.

Calculator Methodology

The Property Tax Calculator applies configured effective rates and assessment ratios from Daily Calcs geo data:

Annual property tax = taxable assessed value * combined effective rate
Monthly escrow = annual property tax / 12

Assumptions: You enter estimated home value and select state (and county when available). Homestead exemptions and special districts use model defaults where county data exists.

Limitations: This is not your county assessor’s bill, escrow analysis, or tax advice. Actual assessed value, exemptions, and bond elections can change your bill materially.

Official and Supporting Sources

Next Step

Use the Property Tax Calculator with your home value and state to see annual tax, monthly escrow, and how your county compares nationally.

Frequently Asked Questions

How is property tax calculated on a home?

Property tax equals assessed value multiplied by the combined tax rate from all taxing jurisdictions — county, city, school district, and special districts. Assessed value may differ from market value because of assessment ratios, caps, and homestead exemptions. The formula is: annual property tax = assessed value * (sum of mill levies / 1,000). Your lender divides the annual bill by 12 for monthly escrow. Two homes on the same street can have different bills if they sit in different school or special districts.

What is the average property tax rate in the United States?

Effective property tax rates in the U.S. typically range from 0.3% to 2.5% of home value depending on state and county. New Jersey and Illinois often exceed 2% effective. Hawaii and Alabama can fall below 0.5%. The national effective average sits near 1.0% to 1.1% of market value. Effective rate means actual tax paid divided by home value — not the nominal mill rate printed on your bill, which can look much higher before exemptions apply.

What is the difference between assessed value and market value?

Market value is what a buyer would pay today. Assessed value is the figure your county uses for taxation, often a percentage of market value set by state law. Some states cap annual assessment increases at 2% to 3%. Others reassess only at sale. A $400,000 market-value home might have a $320,000 assessed value in a 80% assessment-ratio state. Homestead exemptions further reduce the taxable portion. Always check both numbers on your county assessor website.

How much is property tax per month on a $400,000 home?

At a 1.0% effective rate, annual property tax on a $400,000 home is $4,000 — about $333 per month in escrow. At 1.5% effective, that rises to $6,000 annually or $500 per month. At 2.0% effective, expect $8,000 per year or $667 per month. Texas and New Jersey buyers often land in the upper range. Colorado and Arizona buyers often land in the lower to middle range. Use the Property Tax Calculator with your county for a precise estimate.

Do property taxes go up every year?

Property taxes can rise when assessed values increase, mill levies pass voter-approved bonds, or local governments raise rates to fund schools and services. Some states cap annual increases for homestead properties — California Proposition 13 limits rises to 2% per year on assessed value. Texas allows significant jumps after purchase when the home is reassessed to market value. Budget for 2% to 5% annual increases in most markets, and more after major school bond elections.

What is a mill levy and how does it relate to property tax?

A mill is one-thousandth of a dollar. A mill levy of 50 mills means $50 of tax per $1,000 of assessed value. If your assessed value is $300,000 and total mill levies equal 100 mills, annual tax is ($300,000 / 1,000) * 100 = $30,000 — though most residential bills are far lower because exemptions and fractional assessment ratios apply. Counties publish mill levy breakdowns by district so you can see which entities (school, fire, library) drive your bill.

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