Understanding Mill Rates: Property Tax Explained

The mill rate or millage is something that you may not pay attention to directly, but it does have a profound effect on one of your biggest expenses as a homeowner — your property taxes. The amount that you pay in property taxes is directly tied to the mill rate of the various taxes and levies that are in effect in your area.

What Is A Mill Rate?

Mill rate, or millage, is a tax rate some municipalities use to determine their local property taxes. One mill equals one-thousandth of a dollar. For each mill levied on your property, you’ll pay $1 in property taxes per every $1,000 of assessed value. Knowing the mill rate for your property can help you know how much to expect to pay in property taxes. Whether this is for your primary residence or a real estate investment, it's important to know what the mill rate and property taxes will be for any piece of real estate.

How Mill Rates Are Determined

Millage is determined by the local government and, in many cases, the public school district where the home sits. There are a couple of reasons that the mill rate might change. One is if the general market value of neighborhood properties shifts. Or the government may be looking to raise more money through property taxes. In many cases, changes to the mill rate are done through a ballot initiative that must be voted in, like a school levy. In some cases, the local government has the power to update the mill rate of certain taxes without a separate vote.

Millage And Property Taxes

Property taxes are assessed to owners of most kinds of real estate. The money that is raised by local government is used to help fund the government or school district. It's important to understand that the amount in property taxes usually is the sum of several different taxes and levies, each with their own millage. Part of your property taxes may go to fund your county, city, school district and public services like a zoo, library or aid for the poor and disabled.

The amount owed for property taxes is determined by the sum total of the current mill rates for each tax or levy that is active in your area. One good thing to keep in mind is that in many cases, you may be able to take the amount of property taxes you pay as a tax deduction.

How To Calculate Millage Rate And Property Taxes

Property owners can use mills to calculate their property tax rate and total property tax amount:

 

• First, determine the total number of mills in your local tax district.
• Then, divide the number of mills by 1,000 to calculate the mill rate (which is also the property tax rate).
• Multiply the assessed taxable value by the calculated property tax rate.

 

The number of mills will fluctuate based on the individual municipality and the number of taxing authorities (ex: school districts, fire departments, city governance). Homeowners should check their municipality’s mill rate data in order to accurately calculate the true cost of buying and owning a home.

Most local governments will have a website for the county assessor or auditor where property tax information is displayed. That way you can see all of the millage rates with your home's assessed value to determine the amount of property tax that you owe. That will help you understand how much house you can afford.

Mill Rate Example

Here is one example of a mill rate and how it can be used in calculating property taxes. All values in this example are hypothetical and you'll want to use the corresponding values for your particular situation.

 

• The property’s taxable assessed value as determined by an assessor - $200,000
• The total number of mills imposed on a piece of property - 5 mills imposed by the school district, 15 mills imposed by the county government, and 12 mills imposed by a variety of other levies

 

To calculate the property tax, take the assessed value ($200,000) multiplied by the total mills (32 mills) and divide by 1000, since one mill is equal to one-thousandth of a dollar. This gives a total property tax amount of $6,400.

Final Thoughts On Mill Rate

The mill rate, or millage, is an important factor in determining the amount of property taxes that property owners pay. Many local governments make it fairly straightforward to look up the amount of property taxes owed on a particular property. Still, it can be useful to understand the relationship between mill rate and taxes — this can help you be more informed the next time a new tax levy is on the ballot. As always, for more information, look into the Rocket HQ^SM personal finance insights for tips on managing your finances.