How is a tax bill calculated?
It All Starts with Government Spending
The first step in determining how much you owe in property taxes is based on how much revenue your county needs to generate to fund the budgets of all of the taxing bodies. Most property tax revenues go towards funding local school districts, followed by the other taxing bodies such as the fire department, police department, libraries, water reclamation districts, forest preserves, park districts, mosquito abatement districts, etc.
Aggregate Rate & EAV After the total amount of the property taxes to be levied in a given year is established, the taxing authorities determine the property tax rate that must be applied to the total value of real property in each taxing district in order to raise the required property tax revenue. In a simplistic example (ignoring adjusting factors such as levels of assessment, exemptions, state equalization, etc.), if a taxing district needs to generate $5 billion in property tax revenues to cover its budgeted spending and all of the real property located in the taxing district is valued at $100 billion in the county, then the tax rate would be 5% or $5B/$100B. The market value of your home is estimated by the assessor using sales information of homes similar to yours in your area, and then used in determining your home’s assessed value. Your home’s assessed value is then equalized along with all other properties in accordance with applicable law. The tax rate is multiplied by the equalized assessed value (EAV) of your home net of any exemptions applied to your property.
Property Tax Exemptions You may qualify for one or more of several property tax exemptions. Exemptions are available to certain taxpayers who may qualify on the basis of:
- Residing in the property
- Senior citizen status
- Veteran status
- Disability
As an example, an aggregate rate of 9.964 might include:
County 1.068
City 2.570
School District 4.485
Jr. College .420
Forest Preserve District .080
Sanitary District .525
Park District .816
Total 9.964
A taxpayer whose home had an equalized assessed value of $20,000 (after the homestead exemptions were deducted) would have had, based on this rate, a tax bill of $1,993.
Property Tax Fairness Thus, whether the market value of your property goes up or down in any given year, may have no effect on your property tax bill because your county needs to fund its budget regardless of home prices and there are other non-market forces that determine your property tax bill. Because your county is using macro/aggregate information, there are inherently discrepancies in fairness for what you may be asked to pay in property tax relative to other properties. Ascertaining whether the assessed value of your property is fair or should be appealed can be time consuming and difficult, as there are many factors that determine what properties are actually comparable to yours.
Define the terms used on my tax bill.
Fair Cash Value - The amount for which a property can be sold in the due course of business and trade, not under duress, between a willing buyer and a willing seller.
Assessed Value - The value placed on property for tax purposes and the basis for determining what portion of the overall tax burden each property owner will bear. Equalization Factor or Multiplier - The equalization factor (sometimes called a multiplier) is the tool used to bring all property to a uniform level of assessment.
Equalized Assessed Value (EAV) - The equalized assessed value, or EAV, is the result of applying the state equalization factor to the assessed value of a parcel of property. Tax bills are calculated by multiplying the EAV (after any deductions for homesteads) by the tax rate.
Exemption - The removal of property from the tax base. An exemption may only be a portion of the equalized assessed value, such as a homestead exemption, or for the complete amount of the equalized assessed value, such as a church building used exclusively for religious purposes.
Tax Rate - The amount of tax due, stated in terms of a percentage of the tax base. (Example: $6.81 per $100 of equalized assessed valuation (equal to 6.81%). You can obtain this percentage by dividing the levy for a fund by the equalized assessed value for the taxing district. Some funds have a maximum statutory tax rate that may not be exceeded. The sum of the fund rates equals the total district rate.
Taxing District - (amount of taxes collected for each district) - Any unit of local government, school district or community college district with the power to levy property taxes.
Tax Code - A number used by the county clerk that refers to a specific combination of taxing bodies.