Finance: What is Real Estate Tax?

What is real estate tax? Depending on the state in which you reside, real estate and property are subject to state and municipal taxes, which are charged in accordance with the assessed value of the property in question. Real estate tax is one of the few taxes that are not assessed by the Federal government.

College and CareerPersonal Finance
CoursesFinance Concepts
FinanceFinance Definitions
Financial Responsibility
Personal Finance
Finance and EconomicsTerms and Concepts
LanguageEnglish Language
Life SkillsFinance Definitions
Personal Finance
SubjectsFinance and Economics
Terms and ConceptsAccounting
Banking
Bonds
Company Valuation
IPO
Insurance
Managed Funds
Marketing
Metrics
Real Estate
Tax
Trading
Trusts and Estates
Wealth

Transcript

00:26

well the answer is each state is different, or at least has its own laws.

00:30

and generally speaking real estate taxes are local. ie local to your state and

00:36

sometimes to the county that you live in. they are not federal. for example if the

00:41

state of California is the one collecting your real estate tax the

00:44

federal government in Washington well I'm just kind of coughs and looks away

00:48

when you pay up. so how much do you pay? hmm?

00:52

well in most states the amount is based on the purchase price of the home or

00:56

property and then it carries an escalator or it goes up a little bit.

01:00

that is if you've paid a million bucks for this awesome Shuba a mansion in Palo, [shack pictured]

01:05

Alto yes this home sold for a million dollars in 2017. then you'd pay one point

01:11

two five percent of the purchase price of a million bucks each year for your

01:16

taxes or said another way you'd pay twelve thousand five hundred dollars in

01:20

taxes each year on that home, and those taxes would go up a little bit each year

01:24

such that they rose roughly along with the rate of inflation. so that's a real

01:30

estate tax set by the purchase price. well in other states like Texas home

01:35

prices are assessed regularly. whenever that means ,maybe every year maybe every

01:41

few years, or if the owner asks. you know maybe something like that? well why [calendar pictured]

01:45

wouldn't owner asked for a reassessment of taxes? well often homes are bought in

01:49

a hot market and then for awhile the value of the home goes down. so by having

01:54

a home reassessed likely for a lower price the owner saves money on taxes.

01:59

well commercial buildings have different tax systems but are more or less based

02:03

on the same parameters as homes. usually with a lot more zeros on the end.

02:07

so where does all this real estate tax go? well back to the state to you know

02:12

run things, but also to the local local authorities we're a big hunk of the tax

02:17

dollar goes to local public schools to pay for teachers pensions their

02:22

secretaries and yes maybe one or two illicit Bermuda vacations. [teacher walks out with bag of cash]