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How Your Property Tax is Figured

 

Few homeowners have any idea how the property taxes on their homes are computed.  It’s a confusing process, but one that directly affects your pocketbook.

In Arizona, there are actually two separate but similar real estate taxes.  Both are based on a property value for tax purpose multiplied by the assessment ratio and then by the tax rate.

 

PRIMARY RATE

The first tax uses what is called a “limited property value” or LPV.  The limited value created by state tax reform in the early 1980’s, is the property value in 1980 plus annual increases limited by law.  As a result, the LPV may be significantly less than the home’s current value.  

The “primary tax rate” is applied with the limited value.  This tax rate is a total of those determined by the governing boards of the state, county, city, school district & special districts.  It pays for their opening budgets.

 

SECONDARY RATE

The second tax is based on the “fair market value”, a tag that confuses many homeowners.  Fair market value for tax purposes IS NOT the current value of the home, but rather, an average of what similar houses have sold for during the last three years.

During the fast growth years of the past, the FCV often ran about 80% of the current value.  As a result, some people have thought the full cash value is computed by taking 80% of the current market value, but that is not true.

The “secondary tax rate” which is used with the full cash value, pays for long-term bonds and is established by the voters when they approve bond issues.

 

ASSESSMENT RATIO

The assessment ratio is a percentage set by law for how the property is used.  For owner occupied homes, the assessment ratio is 10%.  It is 13% for residential rental, 16% for commercial property.

In effect, the assessment ratio provides a tax break or homes compared to income and investment properties by creating a lower assessment valuation.

The chore of compiling all the property values and computing the taxes falls to the country assessor.

 

PAYING THE PIPER

In Arizona, property taxes may be paid in two payments.  Taxes for the first half of the year are due October 1stand for the second half, due March 1st of the next year.

The dates homeowners usually watch, however, are November 1st and May 1st – the delinquent dates, after which penalties and interest are charged if the taxes have not been paid.