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How to Calculate Mortgage Tax for the Real Estate License Exam

Here are a few sample problems that you may encounter on the Real Estate License Exam about taxes. You need to know this information not only for the test, but also because every listing of a property for sale generally requires the agent to find out what the taxes are.

How to calculate the assessed value of a property

Many municipalities use assessment ratios to assess properties. An assessment ratio is the percentage relationship between the market value of a property, which is the amount the property will sell for in a normal market sale, and the assessed value, which is a value tax assessors use to calculate taxes. The use of an assessment ratio creates the possibility of three kinds of exam problems.

A property has a market value of $200,000. The assessment ratio is 60 percent. What is the assessed value?

Market value x assessment ratio = assessed value

$200,000 x 0.60 = $120,000

What is the assessment ratio of a property whose market value is $200,000 and whose assessed value is $120,000?

Assessed value ÷market value = assessment ratio

$120,000 ÷$200,000 = 0.60 or 60 percent

What is the market value of a property assessed at a 60 percent assessment ratio whose assessed value is $120,000?

Assessed value ÷assessment ratio = market value

$120,000 ÷0.60 = $200,000

How to calculate taxes due

You can calculate taxes due using one of the following three methods, depending on how the municipality calculates taxes or how the exam question is asked.

  • Mills: This method bases the tax rate on so many tenths of a penny (or mills) in taxes for each dollar of assessed value.

  • Dollars per hundred: This method bases the tax rate on so many dollars of tax for each $100 of assessed value.

  • Dollars per thousand: This method bases the tax rate on so many dollars of tax per $1,000 of assessed value.

You need to be familiar with all three methods for exam purposes.

Mills

The tax rate in town is 24 mills. The assessed value of the property is $30,000. What are the taxes on the property?

Assessed value x millage = taxes owed

$30,000 x $0.024 = $720

Remember, when working with a millage, move the decimal three places to the left, because millages are tax rates expressed in mills, or tenths of a cent.

Taxes per hundred

The tax rate is $2.40 per $100 assessed value. What are the taxes on a property assessed at $30,000?

Assessed value x tax rate = taxes owed

$30,000 x ($2.40 ÷$100) = taxes owed

$2.40 (tax rate) ÷$100 (ratio of assessed value) = $0.024 tax rate (per dollar of assessed valuation)

$30,000 x $0.024 = $720

Taxes per thousand

The tax rate on a property assessed at $30,000 is $24 per thousand. What are the taxes?

Assessed value x tax rate = taxes owed

$30,000 x ($24 ÷$1,000) = taxes owed

$24 (tax rate) ÷$1,000 (ratio of assessed value) = $0.024 tax rate (per dollar of assessed valuation)

$30,000 x $0.024 = $720

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