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The Property (Ad Valorem) Tax

Ad valorem property taxes are levied on real or personal property by local government units including counties, municipalities, school districts, and special taxing districts. Ad valorem means a tax on goods or property expressed as a percentage of the sales price or assessed value.

What Property is Taxed?

Taxes on Real Property. "Real property" for property tax purposes generally includes the land, building, structures, and all improvements or fixtures annexed to the building or structure. The definition of real property often excludes business personal property such as tools, implements, machinery, and equipment attached to or installed as real property for use in the business.

Taxes on Personal Property. Taxing authorities may also tax personal property. The items taxed vary by jurisdiction but most jurisdictions do not impose property taxes on household goods, inventories, and intangible personal property such as tax and bonds. Motor vehicles, however, are often subject to ad valorem taxation.

Determining the Amount of Ad Valorem Taxes

Generally ad valorem taxes are assessed as of January 1 of each year, and are computed as a percentage of the assessed value of the property being taxed. The assessed value of property generally means the annual determination of fair market value. "Fair market value" is usually defined as the price that a willing buyer would pay and a willing seller would accept for property, neither being under any compulsion to buy or to sell. It is also defined as the price at which property would change hands between a willing buyer and a willing seller when both have reasonable knowledge of all the facts necessary and neither is required to buy or sell.

Appraisers hired by the taxing authority most often value the property. Most taxing authorities require periodic inspections of the subject property as part of the valuation process and establish appraisal criteria to determine fair market value. Such criteria include factors analyzing:

  • the cost of the property and subsequent depreciation,
  • comparable market data,
  • the use of the property, and
  • estimated annual net income generated by business property.

Disputing Valuation

Upon notification of assessment, the property owner may dispute the valuation. Generally taxpayers may request a hearing at the local level and, if necessary, appeal the valuation to a higher agency and ultimately a tax court.

Levy of Tax and Classification

Once a value is determined, the tax is levied, and the property owner is notified. The actual tax rate may vary depending on the property's classification. Property is often classified according to its use. Common classifications include commercial/industrial property, multiple dwelling property, residential homestead property, agricultural property, and business property.

Next Steps
Contact a qualified tax attorney to help you navigate
your federal and/or state tax issues.
(e.g., Chicago, IL or 60611)

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