A handy guide on what is mills in real estate

One of the biggest ongoing costs you’ll face as a homeowner is paying your property taxes. And, the mill rate, or millage rate, affects how much you pay in total. That’s why, to figure out your property tax, it’s helpful to know what is mills in real estate, and how the mill rate depends on the assessed value of your home. This information will help you budget your homeownership expenses better. 

What is mills in real estate?

The mill rate is a tax rate that shows how much tax you pay per dollar of your property’s assessed value. Interestingly, the term “mill” comes from the Latin word “millesimum,” which means thousandth. In property tax terms, 1 mill equals $1 in tax for every $1,000 of your property’s assessed value.

Therefore, the mill rate figures out your local property taxes based on your home’s assessed value. It tells you how much tax you owe for every dollar of that value. For example, if the mill rate is 5, you owe $5 in taxes for every $1,000 of your property’s assessed value. Basically, it helps determine how much you’ll pay in taxes based on how much your property is worth.

How do millage rates work?

Each local authority, like the city, county, or school district, sets its own mill rate. There are different taxes and levies with their own millage rates, and they add up to determine your total property tax bill.

These rates are applied to your home’s assessed value to figure out how much you owe to each agency. Local governments set the mill rate based on the total property value in their area to generate enough tax revenue to cover their annual budget. 

More specifically, government-appointed assessors decide this assessed value, which can be the same as your home’s market value but is often lower. Your actual property tax is the total of all the taxes from each agency, based on their mill rates.

Mill rates can vary depending on the type of property it is – whether it’s a residential, commercial, industrial, or agricultural property. 

If you want to find out your property’s millage rate, you should start by checking your property tax statements, county or municipal websites, tax notices, or contact your local tax assessor’s office.

How can you calculate your property taxes from the mill rate?

Property taxes are important for funding local government services. While not all states have income taxes, every U.S. state has property taxes. These taxes are often assessed by multiple government entities, so you might pay both municipal and county taxes on the same property.

Local governments set mill rates based on the total property value in their area. This money goes toward services such as building roads, police, emergency services, parks, and public schools. Because of changing real estate values, assessment rates, and budget needs, tax assessors usually update your property’s taxable value every year.

As mentioned, the mill rate tells you how much property tax you’ll pay on your home. If the local mill rate is 12, it means you’re paying 1.2% of your property’s assessed value in taxes. And, if you want to calculate your property tax, simply multiply your property’s assessed value by the mill rate and then divide by 1,000.

How do taxes affect your home costs?

When you own a home, your most substantial expenses include your monthly mortgage, property taxes, homeowners insurance, and possibly private mortgage insurance (PMI) if you put down less than 20%. Usually, you pay your property taxes through your monthly mortgage payment using an escrow account set up by your loan lender. This means higher property taxes will increase your monthly payment to that account.

In this setup, your lender pays your property taxes when they’re due. Alternatively, you can pay the taxes directly to your local tax collector. Either way, you need to budget for your property taxes when planning for a new home. To figure out the extra monthly cost, just divide your annual property taxes by 12 and add that to your monthly mortgage payment.

Does the mill rate remain constant throughout homeownership?

Local governments can change the mill rate every year to meet their financial needs. They might raise the mill rate to get more money for important things such as new schools, roads, or public safety. This usually happens when the budget or community needs change. On the other hand, they might lower the mill rate if there’s extra money or if property taxes are getting too high and people need a break.

Mill rates can change for many reasons, including:

• Budget needs: If the local government has more or less to spend on services, infrastructure, or projects, they might change the mill rate.
• Property assessments: Changes in property values can affect how much tax is collected. So, the mill rate might be adjusted accordingly.
• State funding: If the state cuts funding, the local government might raise the mill rate to make up for the lost money.
• Service expansion: If they want to add or improve services such as schools, parks, or public safety, they might need more money and increase the mill rate.
• Economic conditions: The economy can go up or down, affecting revenue needs. This can lead to changes in the mill rate to keep the budget balanced.

Read more: Homeowning grows the economy of a country

Key takeaway

The mill rate is just a tax rate used to figure out property taxes in an area. The math is simple: 1 mill equals $1 in property tax for every $1,000 of your property’s assessed value. So, if the mill rate is 7, you pay $7 for every $1,000 of your property’s assessed value. These property taxes fund local government expenses in your area.

Knowing what is mills in real estate and how to calculate property taxes using the mill rate is really useful as a homeowner. When you multiply your property’s assessed value by the mill rate, you can see exactly how much you’re paying in taxes to different authorities. This helps you plan your finances better and understand how your property taxes are calculated.

Written by Ramona Sinha. August 1, 2024

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.