Rob Hartley

Founder, AppealDesk · February 16, 2026

First-Time Homebuyer’s Guide to Property Taxes

Updated February 2026 · 11 min read

How Property Taxes Are Calculated

Your property tax bill has two components: your property’s assessed value and your local tax rate. Here’s how they work together:

Assessed Value

Your county assessor determines your home’s value using mass appraisal — algorithms that estimate property values based on recent sales, property characteristics, and location. The assessed value may equal market value (in states with a 100% assessment ratio like Texas and California) or a fraction of market value (in states like Georgia at 40%, Tennessee at 25%, or South Carolina at 4%).

Tax Rate (Mill Rate)

Your local tax rate is set by the taxing jurisdictions that serve your property: county, city/town, school district, and special districts (fire, library, water). According to Tax Foundation data, the combined rate varies enormously by location — from under 0.5% in Hawaii to over 4% in parts of New Jersey. This rate is applied to your assessed value (or equalized assessed value in some states).

Key insight: You can’t change the tax rate through an appeal. Tax rates are set by elected officials and voter-approved levies. What you can challenge is your assessed value — if the county says your home is worth more than it actually is.

What Happens to Property Taxes When You Buy a Home

Several things change when a property changes hands:

1. Closing prorations: At closing, property taxes are divided between you and the seller based on the closing date. The seller pays for the portion of the year they owned the home; you pay from closing forward. This appears on your closing disclosure as a credit or debit.
2. Reassessment trigger: In most states, a sale gives the county fresh evidence of market value — your purchase price. The next assessment will likely reflect what you paid. In California (Prop 13), a sale requires reassessment to the purchase price.
3. Previous exemptions disappear: The seller’s homestead exemption, senior freeze, or other personal exemptions are removed when they sell. You must apply for your own exemptions separately.
4. Cap resets: In states with annual assessment increase caps (Texas 10%, California 2%), the cap resets to the new purchase price. This means you’ll pay taxes based on what you paid, not the seller’s lower capped value.

Understanding Escrow: How Your Mortgage Handles Property Taxes

Most mortgage lenders require an escrow account for property taxes and insurance. Here’s how it works:

• Your lender estimates your annual property tax bill (the IRS considers property taxes deductible up to the $10,000 SALT cap)
• They divide that estimate by 12 and add it to your monthly mortgage payment
• Each month, that portion goes into an escrow account
• When property taxes are due, the lender pays from the escrow account
• Annually, the lender reviews the escrow balance and adjusts your monthly payment

Watch for escrow surprises: Your first year’s escrow estimate is based on the previous owner’s tax bill, which may have included exemptions you haven’t claimed yet or a capped assessment that resets with your purchase. When the new, higher tax bill arrives, your lender will increase your monthly payment to cover the shortfall. Expect an escrow adjustment within your first 12-18 months of ownership.

Your First Move: File for Homestead Exemption

The homestead exemption is the single most important tax-saving step for new homeowners. It’s available in nearly every state, it’s free to apply for, and it reduces your property tax bill every year. Many first-time buyers don’t know about it or assume it’s applied automatically — in most states, you must apply.

The exemption amount and benefits vary by state:

Action step: Apply for homestead exemption within 30 days of closing if your state requires it. Some states (like Texas) allow filing at any time with retroactive application. Check your county assessor’s website for the application form. For detailed state-by-state information, see our property tax exemptions guide.

Reading Your First Assessment Notice

Within your first year of ownership, you’ll receive a property assessment notice (sometimes called a notice of value, notice of assessment, or in Texas, a Notice of Appraised Value). This document shows your property’s assessed value for the upcoming tax year. Key things to look for:

• Current assessed value vs. prior year: If it increased significantly, investigate why
• Property characteristics: Verify square footage, rooms, lot size match reality
• Exemptions: Make sure your homestead exemption is applied
• Appeal deadline: Note the date — you typically have 30-90 days to challenge
• Implied market value: In states with assessment ratios below 100%, divide your assessed value by the ratio to see what the county thinks your home is worth

For a complete walkthrough of assessment notices, see our guide on understanding your property assessment notice.

Should You Challenge Your Assessment as a New Homeowner?

Your purchase price is your strongest piece of evidence. Here’s when an appeal makes sense:

Important: If your assessed value is lower than what you paid, do not draw attention to it by filing an appeal. The county will eventually catch up through their regular reassessment process, but there’s no reason to accelerate that. For more on this topic, see can appealing raise your property taxes?

Budgeting for Property Taxes as a New Homeowner

Property taxes are your second-largest housing cost. Here’s how to budget accurately:

• Don’t rely on the listing tax amount. The tax figure on your home’s listing was the previous owner’s bill, which may have included exemptions and caps that won’t carry over to you.
• Calculate from your purchase price. Multiply your purchase price by your state’s assessment ratio, then by the local tax rate. This gives you a rough estimate of your first full-year bill. Use our savings calculator for a quick estimate.
• Budget 1-3% of home value per year. This is a rough national range. High-tax states (NJ, IL, TX, CT) are at the upper end; low-tax states (HI, AL, CO, WV) are at the lower end.
• Set aside monthly. Even if you don’t have escrow, divide your estimated annual taxes by 12 and save that amount monthly. Tax bills arrive in large lump sums — quarterly, semi-annually, or annually depending on your county.

Frequently Asked Questions

New Homeowner Property Tax Checklist