An assessment ratio is the percentage of a property’s market value that’s used to determine its taxable value. Local governments use this ratio to calculate property taxes by applying it to the property’s fair market value (what it would sell for). The result is the assessed value, which is then used to calculate the property taxes owed.
How Assessment Ratios Work
Property taxes are typically based on a property’s assessed value rather than its full market value. The assessment ratio determines how much of the market value is subject to taxation.
For example, if a home has a market value of $200,000 and the local assessment ratio is 80%, the property's assessed value would be $160,000.
$200,000 × 80% = $160,000 assessed value
The local tax authority then applies the property tax rate to this assessed value to determine the amount of tax owed.
Variations in Assessment Ratios
Location:
Assessment ratios vary by state, county, and municipality. Some states, like Texas, use a 100% assessment ratio, meaning the full market value is taxed, while others apply lower percentages.
Property type:
Different property types, such as residential, commercial, agricultural, or industrial, may have different assessment ratios, like in New York. For example, commercial properties may be taxed at a higher ratio than residential properties.
Tax classification:
Some jurisdictions have different assessment ratios based on a property’s use. For instance, a primary residence may qualify for a lower ratio than a rental property. Or a primary residence will receive a homestead exemption, reducing its overall assessed value.
Importance of the Assessment Ratio
The assessment ratio directly affects the amount of property tax owed. A lower assessment ratio can result in lower taxes, while a higher ratio increases tax liability.
Example of Property Tax Calculation Using an Assessment Ratio
Consider a homeowner with the following details:
Market value: $250,000
Assessment ratio: 60%
Property tax rate: 2%
Assessment value calculation:
$250,000 (market value) x 60% (assessment ratio) = $150,000 assessed value
Property tax calculation:
$150,000 (assessed value) x 2% (tax rate) = $3,000 annual property tax amount
How Assessment Ratios Impact Property Owners
Potential for tax appeals:
If a property owner believes the assessed value is too high due to an incorrect assessment ratio, they may be able to appeal their property tax assessment.
Changes in tax bills:
Local governments can adjust assessment ratios over time, leading to fluctuations in property tax bills.
Investment considerations:
Understanding assessment ratios helps real estate investors estimate property expenses and potential tax liabilities before purchasing a property.
How To Check Your Assessment Ratio
You can find your assessment ratio on your local tax assessor’s website, in your property tax bill, or by contacting your county or municipal tax office. If the assessment ratio seems incorrect — often due to an incorrect property classification — you may challenge it through an appeal process.
Save on Property Taxes
If your property’s assessed value seems too high, you can often appeal your tax assessment and lower your bill.
Ownwell helps homeowners and property investors challenge their property tax assessments. We save homeowners $1,102 on average and achieve 31% more savings than most competitors for commercial clients.
Start your property tax appeal today and see how much you can save!