What Is the Difference Between Assessed Value & Taxable Value of Real Estate?

What Is the Difference Between Assessed Value & Taxable Value of Real Estate?
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Real estate can have different valuations, including assessed value, taxable value and market value. The difference between assessed value and taxable value often draws a fine line. Cities, counties or municipalities need to determine a property's value so they can send a bill to property owners for their property tax liability. In some areas, the assessed value and taxable value are the same; but sometimes, districts use a lower taxable value than the actual assessed value of a property as a discount to property owners.

Tips

  • Assessed value more reliably mirrors the actual valuation of a property in a certain market, but taxable value is the valuation that a local district places on a property to assess property taxes. In some districts, these two values are the same; in other districts, taxable value is lower than assessed value.

Fair Market Value

To understand assessed and taxable values, you first have to understand fair market value. This is the price you can expect to sell your home for if you put it on the market today. Fair market value is based on the value of similar properties in the area and aspects specific to your home like its size, style and age. It can also take into account the most recent sale value, adjusted for average changes in local housing prices, and any improvements you've made.

Assessed Value

Most tax districts, whether it's a state or local government, employ real estate appraisers to regularly assess the value of property within the district. The appraiser's goal is to arrive at an assessed value as close as possible to the fair market value of the property -- the price you might reasonably assume to sell for at the time of the appraisal.

Taxable Value

The taxable value of your home is the amount the tax district will use to determine your annual property tax. For most districts, the taxable value equals the assessed value. Some areas, however, use a taxable value that's lower than the assessed value using a system that's similar to the standard deduction on your income tax. This might be expressed as a percentage of the assessed value, or as the assessed value minus a fixed sum.

Why It Matters

If the assessed value of a property where you live equals the taxable value, the difference doesn't matter. If your district does discount the taxable value, it can add up to serious money over the years you live in your home. For example, a $200,000 home in a district with a 1.5 percent property tax rate means paying $3,000 a year. If the taxable value was 10 percent lower, the tax would be just $2,700 a year -- a savings of $6,000 over the course of a 20-year mortgage.