Ad Valorem
Standard Definition
Latin for 'according to value,' used to describe property tax assessments based on the assessed valuation of the property.
Detailed Examination Analysis
Ad Valorem taxes are local property taxes calculated based on the assessed value of the real estate. Local government entities, such as counties, municipalities, and school districts, assess properties to fund public services like schools, police, fire protection, and road maintenance. A tax assessor establishes an assessed value for the property, which is often a percentage of its fair market value. The tax rate (millage rate) is then applied to this assessed value to determine the annual tax bill.
Real-World Examination Scenario
"A property has a market value of $300,000, but the local county assesses property taxes at 60% of market value, resulting in an assessed value of $180,000. If the tax rate is 20 mills ($0.020 per dollar), the annual ad valorem property tax is $3,600."
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