Tax Rate
The percentage or dollar amount per unit of value used to calculate property taxes. The tax rate multiplied by the assessed value equals the annual property tax bill. Rates are set by local taxing jurisdictions.
Understanding Tax Rate
Property tax rates are set annually by each taxing jurisdiction—counties, cities, school districts, and special districts. The rate needed depends on the jurisdiction's budget and the total assessed value in its boundaries. Higher total values allow lower rates to generate the same revenue.
Rates are expressed differently by jurisdiction: mills (dollars per $1,000 of value), dollars per $100 of value, or as a percentage. Understanding the local convention is important for comparing rates and calculating taxes.
Multiple jurisdictions tax the same property. A home might be taxed by the county, city, school district, community college, hospital district, and more. Each sets its own rate. The 'effective' or 'composite' rate is the sum of all rates.
For investors, tax rates significantly impact carrying costs and property value. High-tax areas require more income to cover expenses. Rate changes affect property values—rate increases can depress values while rate cuts can boost them.
Real-World Example
A property with $200,000 assessed value is taxed by four jurisdictions: County ($0.45/$100), City ($0.52/$100), School ($1.20/$100), and Hospital District ($0.15/$100). Total rate: $2.32/$100. Annual taxes: $4,640 ($200,000 × $2.32 / $100).
Texas-Specific Information
Texas has some of the highest property tax rates in the nation, averaging around 1.8% effective rate. Texas school districts are typically the largest component. Texas law caps school district maintenance tax rates at $1.00 per $100 value. Recent Texas legislation has provided tax relief through increased homestead exemptions and tax rate compression for schools.
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.
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.
Track Deals Involving Tax Rate
Liensuite helps curative title investors manage complex deals from first contact to closing. Start free with full Hidalgo County access.