Assessed Value
The value assigned to a property by tax authorities for purposes of calculating property taxes. Assessed value may differ from market value based on assessment ratios, exemptions, and caps on value increases.
Understanding Assessed Value
Assessed value is the basis for property tax calculations. Each year, assessors (often county appraisal districts) determine property values. The tax rate is then applied to this assessed value to calculate the tax bill.
Assessed value and market value aren't always equal. Some states assess at a percentage of market value. Homestead and other exemptions reduce assessed value below market value. Caps on annual increases (common for homesteads) can cause assessed value to lag behind market value during appreciation.
Property owners can often protest their assessments if they believe the value is too high. Successful protests reduce tax bills. In some areas, protesting has become routine, with most property owners or their hired representatives filing annual protests.
For investors, understanding assessed values helps estimate property taxes (a major carrying cost) and may indicate whether a property is over- or under-assessed. Properties with low assessments relative to market value may face increases; those assessed high may benefit from protest.
Real-World Example
A property has a market value of $300,000. The appraisal district assesses it at $280,000 (below market due to the homestead cap). With a $100,000 homestead exemption, the taxable value is $180,000. At a 2.5% tax rate, annual taxes are $4,500.
Texas-Specific Information
Texas appraises property at 100% of market value, but exemptions and caps reduce taxable value. Texas homesteads benefit from a mandatory $100,000 school exemption plus a 10% annual appraisal cap. Texas property owners have strong protest rights and can protest values each year. Appraisal district values are public record and available online for most Texas counties.
Related Terms
Ad Valorem Tax
A tax based on the assessed value of property, from the Latin meaning 'according to value.' Property taxes are the most common form of ad valorem taxation, calculated as a percentage of the property's appraised value.
Homestead Exemption
A property tax reduction for owner-occupied primary residences. The exemption reduces the taxable value of the home, lowering the annual property tax bill for qualifying homeowners.
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