Ad Valorem Tax: What It It and How to Pay It

What is ad valorem tax?

Ad valorem (Latin for “according to value”) tax is more commonly known as property tax. It is charged based on the assessed value of property, such as real estate. Ad valorem may also apply to import duty taxes. 

Ad valorem taxes are most commonly municipal property taxes. A public tax assessor regularly assesses the value of the property. The assessed value is then used to calculate the annual tax the owner of the property needs to pay. 

Ad valorem taxes are imposed on owners of real assets annually, whereas sales taxes are only applied at the time of purchase. 

How are ad valorem taxes charged?

Property taxes are usually applied by municipalities, counties, school districts, or special taxing districts. The federal government rarely collects ad valorem taxes, except for import taxes. Importers pay a percentage of the value of the imported goods to the federal government. This is then passed along to consumers. Property owners may have to pay taxes levied by multiple government bodies, such as the municipality and county. 

Usually, properties are assessed annually, typically on Jan. 1. Ad valorem taxes are a percentage of the property value. This is usually the same as the fair market value or reasonable sale price for the property.

Property owners must pay taxes for both real property (land, buildings, and property improvements) and major personal property (like a boat or car).

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