Property taxes are a major source of income for city, county and state governments, and other entities such as school districts. Calculating a property owner's tax due starts with determining the market value of that particular piece of property. This is determined in one of three ways: 1) the projected sales price, 2) the replacement cost or 3) the income that could be realized by renting out the property. The taxing authority then sets two rates that ultimately determine the taxes to be paid. First, it determines the assessment rate as the percentage of the value of a property that will be subject to the property tax, usually less than 100%. Once the assessment rate is set, then the tax rate is determined by the amount of tax revenue the authority needs to meet its budget for that tax year. For a simple example, suppose a municipality with a total assessed property value of $100 million needs revenue of $1 million for the year. Therefore, the necessary tax rate would be 1%. This is usually expressed as a mill levy, with 1% equal to 10 mills.

For a specific property, once its market value is determined, that amount is multiplied by the assessment rate to get the assessed value. The tax due is then calculated by multiplying the assessed value by the mill levy. For example, if the market value of the property is $500,000, the assessment rate is 8% and the mill levy is 4.5% (45 mills), then the tax due will be ($500,000 x 0.08 x 0.045) = $1,800.

Now that you know how property taxes are calculated, here are five tricks for lowering your property taxes.