PSI Virginia Real Estate Practice Exam

How are property taxes calculated?

1. By multiplying mortgage points with equity

2. By factoring in the loan-to-value ratio

3. By multiplying the assessed value by the total property tax rate

4. By dividing the market value of the property by the tax rate

The correct answer is: By multiplying the assessed value by the total property tax rate

Property taxes are calculated by multiplying the assessed value of the property by the total property tax rate. This process begins with determining the assessed value, which is an estimate of a property's worth typically conducted by local tax authorities. The assessed value is then multiplied by the property tax rate, which is usually expressed in mills (where one mill represents one-tenth of a cent). This method allows local governments to calculate the revenue they need to fund public services such as schools, emergency services, and infrastructure maintenance. The other choices do not accurately describe how property taxes are calculated. For instance, multiplying mortgage points with equity does not relate to the property tax calculation, as mortgage points pertain to the loan origination and not property tax assessments. Factoring in the loan-to-value ratio is more significant when discussing mortgages and financing rather than property taxes. Lastly, dividing the market value of the property by the tax rate is a miscalculation; the tax rate is not divided into the market value for tax determination, as the actual formula is a multiplication of assessed value by tax rate.