What is ad valorem tax?

What is ad valorem tax?

• A. A tax on the transfer of property.
• B. Tax based on assessed value of property.
• C. A tax with flat rate.
• D. Tax on rental income.

Answer: (B)

Ad valorem tax means a tax that is based on the value of the property. The term comes from Latin for “according to value.” In practice, local assessors determine an assessed value for each property, and the tax owed is the assessed value multiplied by the tax rate. For example, if a home has an assessed value of $300,000 and the local rate is 1.5%, the annual ad valorem tax would be $4,500. This distinguishes it from a transfer tax, which is charged on the sale price; a flat-rate tax, which is the same fixed amount regardless of value; and a tax on rental income, which is based on income rather than property value.

Ad valorem tax means a tax that is based on the value of the property. The term comes from Latin for “according to value.” In practice, local assessors determine an assessed value for each property, and the tax owed is the assessed value multiplied by the tax rate. For example, if a home has an assessed value of $300,000 and the local rate is 1.5%, the annual ad valorem tax would be $4,500. This distinguishes it from a transfer tax, which is charged on the sale price; a flat-rate tax, which is the same fixed amount regardless of value; and a tax on rental income, which is based on income rather than property value.