The effective tax rate is what you actually pay in property taxes as a percentage of your property's market value. It's different from the nominal (stated) tax rate because it accounts for exemptions, assessment ratios, and how your assessment compares to true market value.
If your home is worth $400,000 and you pay $8,000 in property taxes, your effective tax rate is 2% ($8,000 á $400,000)âregardless of what the official rate says.
This metric helps compare tax burdens across different properties, counties, and states more accurately than nominal rates alone.
Effective tax rate reveals your true tax burden and helps identify savings opportunities:
High effective rate? Your assessed value may be too close to (or above) market value. A successful appeal could lower it.
Higher than neighbors? You might be overassessed relative to similar propertiesâgrounds for an unequal appraisal protest in Texas.
Comparing homes to buy? Check the effective rate, not just the tax amount. A lower-priced home with high assessment might cost more in taxes than expected.
Lowering your assessed value directly reduces your effective tax rateâand your annual bill.
Texas homeowner:
⢠Market value: $400,000
⢠Assessed value: $400,000
⢠Homestead exemption: -$100,000 (school taxes)
⢠Nominal tax rate: 2.5%
⢠Actual taxes paid: $8,500
⢠Effective rate: $8,500 á $400,000 = 2.125%
California homeowner:
⢠Market value: $800,000
⢠Assessed value (Prop 13 base): $400,000
⢠Nominal tax rate: 1.1%
⢠Actual taxes paid: $4,400
⢠Effective rate: $4,400 á $800,000 = 0.55%
The California owner's effective rate is much lower because their assessed value is below market value.
It depends on location. Texas effective rates typically range from 1.5-2.5%. California rates are often 0.5-1.1% due to Prop 13. Compare to your neighbors and county averages.
File a property tax appeal to reduce your assessed value. Every dollar of assessed value reduction lowers your effective rate. Claiming all exemptions you qualify for also helps.
Possible reasons: your assessed value is higher than theirs, you're missing exemptions they have, or your property was recently purchased/reassessed at a higher value. In Texas, this disparity could support an unequal appraisal protest.