What is a Mill in Real Estate?
A mill, in the context of real estate, is a financial unit equal to one-tenth of a cent ($0.001). It is commonly used in expressing property tax rates on a per-dollar basis. When discussing property taxes, the mill rate is applied to the assessed value of a property to determine the amount of tax owed.
Example
Let’s say the tax rate in a given area is 60 mills. This rate means that for every dollar of assessed property valuation, a property owner would owe 6 cents in taxes.
For example, if a property’s assessed value is $200,000:
- 60 mills = 60 / 1000 = 0.060
- $200,000 (assessed value) × 0.060 (mill rate) = $12,000 tax owed annually
Frequently Asked Questions (FAQs)
Q: How do you convert mills to a percentage?
A: To convert mills to a percentage, divide the number of mills by 10. For example, a tax rate of 20 mills is equivalent to 2%.
Q: How are mills calculated in relation to assessed property value?
A: Mill rates are calculated by taking the number of mills and dividing by 1000, then multiplying by the property’s assessed value to determine the tax owed.
Q: Why do some municipalities use mills as a unit for tax rates?
A: Mills provide a more detailed and smaller unit of measure for setting tax rates, allowing municipalities to make finer adjustments to property taxes without involving fractional percentages.
Q: What is the difference between assessed value and market value?
A: The assessed value is a value assigned by the municipality for property taxation purposes, which may differ from the market value, or the price that a property would sell for on the open market.
- Assessed Valuation: The dollar value assigned to a property for purposes of measuring applicable taxes, often a percentage of the market value.
- Property Tax: A tax levied on property owned by individuals or corporations, typically calculated as a percentage of the assessed valuation.
- Tax Rate: The percentage at which an individual or corporation is taxed, expressed in mills in the context of property tax.
- Fiscal Policy: Government policies regarding taxation, government spending, and budget management.
Online Resources
- National Taxpayers Union - The Basics of Property Tax
- The Official Website of the U.S. Government - Property Taxes
- Internal Revenue Service (IRS) - Property (Real Estate) Tax Information
References
- Investopedia - Mill Rate Definition
- National Association of Realtors - Understanding Property Taxes
- US Tax Foundation - Property Taxes in the United States
Suggested Books
- “Property Taxation and Local Government Finance” by Wallace E. Oates - A comprehensive look into the principles of property taxation.
- “Local Government Budgeting” by Anwar Shah - Insights into fiscal policy including property tax allocation.
- “The Costs and Benefits of Local Government Taxation” by Daphne Kenyon and Babara Scotland - Analysis of impacts property tax has on local governments and stakeholders.
Real Estate Basics: MILL Fundamentals Quiz
### What does one mill represent?
- [ ] One cent
- [ ] One-twentieth of a cent
- [x] One-tenth of a cent
- [ ] One dollar
> **Explanation:** One mill is one-tenth of a cent. It is used for measuring tax rates on a per-dollar basis of assessed property value.
### How would a tax rate of 55 mills be expressed in decimal form?
- [ ] 0.055
- [x] 0.055
- [ ] 5.5
- [ ] 0.0055
> **Explanation:** To convert 55 mills to a decimal, divide by 1000: 55/1000 = 0.055.
### If a property is assessed at $150,000 with a mill rate of 25, what is the tax amount owed?
- [ ] $375
- [x] $3,750
- [ ] $37.50
- [ ] $375,000
> **Explanation:** The calculation: $150,000 (assessed value) × 0.025 (mill rate) = $3,750.
### Why might local governments prefer using mills instead of percentages for tax rates?
- [ ] It simplifies calculations for large sums.
- [ ] It appears more complex.
- [x] It allows for finer adjustments.
- [ ] It is required by federal law.
> **Explanation:** Mills provide a finer unit of measure for setting granular tax rates compared to percentages.
### How do you convert mills to a percentage?
- [ ] Divide by 5
- [ ] Square the number of mills
- [x] Divide by 10
- [ ] Multiply by 0.001
> **Explanation:** To convert mills to percentage, divide the number of mills by 10.
### What does an effective property tax rate of 60 mills mean?
- [ ] $600 per $1000 of property value
- [x] 6 cents per dollar of assessed value
- [ ] 1 cent per dollar of assessed value
- [ ] 60 pennies per dollar
> **Explanation:** A tax rate of 60 mills translates to 6 cents per dollar of assessed valuation.
### When calculating property taxes, why is "assessed value" used instead of "market value"?
- [ ] Assessed value is more accurate.
- [ ] It incorporates the homeowner's improvements.
- [x] It is the value determined by tax authorities.
- [ ] Assessed value is usually higher.
> **Explanation:** The assessed value is used as it is the value determined by tax authorities specifically for tax purposes.
### How does a higher mill rate affect property owners?
- [ ] Reduces insurance premiums.
- [ ] Has no significant effect.
- [x] Increases the property tax burden.
- [ ] Lowers the assessed value.
> **Explanation:** A higher mill rate increases the amount of property tax property owners need to pay.
### For a property assessed at $250,000 with a 40 mills tax rate, what would the annual tax be?
- [ ] $10,000
- [ ] $1,000
- [x] $10,000
- [ ] $25,000
> **Explanation:** The correct method: $250,000 (assessed) × 0.040 (mill rate) = $10,000.
### How does the mill rate influence local government budgets?
- [ ] Provides entertainment budgets.
- [ ] Maintains a reserve for emergencies.
- [ ] Determined by corporations.
- [x] Generates revenue for public services.
> **Explanation:** Mill rates set by local governments help generate revenue needed for public services such as schools, safety, and public infrastructure.
