The Ad Valorem Process and How Virginia Property Taxes are Assessed
We’re back with our Real Estate “Word of the Week“! This week we are going to explain what the Ad Valorem Process is.
Ad Valorem Process: The process by which many state and local governments assess real estate taxes for operating revenue. The term “Ad valorem” is Latin for “according to value.” Ad valorem taxes are based on the unique assessed value of the subject property.
There are three types of property: Land, Improvements to Land (immovable man made things), and Personal (movable man made things). Real estate, real property or realty are all terms for the combination of land and improvements. The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.
Property Tax Assessment in Virginia
In Virginia, property taxes are calculated by multiplying a home’s assessed value by its total property tax rate. State law requires cities to reassess every two years and counties every four years. Since properties aren’t reassessed yearly, the assessed values typically diverge from market values over time. The state of Virginia conducts an annual sales ratio study to determine the ratio of assessed values to market values. While ratios are generally close to 100%, in some cases they are not.
This means that it is entirely possible to notice significant changes to assessed values. According to Virginia state law, total taxes across a tax district cannot increase by more than 1% because of a reassessment. However, taxes on an individual property can increase by any amount. Keep that in mind as reassessment approaches!
The Real Value of Your Home
So, what is my home really worth? The purpose of reassessment is to determine the fair market value of a property. This is the price the property would sell for on the open market. However, as we mentioned above, the assessed price can often diverge slightly. Couple that with the often misleading estimates on popular Real Estate websites, and it can make for a very confusing conversation if you’re looking to sell your home. 
Our Real Estate Team does extensive research before presenting a pricing strategy to a client. Homes that have recently sold in the neighborhood and surrounding areas (referred to as “comps” or “comparables”), the tax assessment, as well as current market trends all factor into our price conculsion.
Our Expert Realtors offer a FREE, no obligation consultation and Home Analysis. If you’re thinking of placing your home for sale, we would love help you reach your Real Estate goals. Simply contact us below and one of our Agents will be in touch.
treatment you are able to take advantage of on your individual tax return. Deducting mortgage interest and real estate taxes is often what makes it more beneficial for taxpayers to itemize their deductions (rather than using the standard deduction); along with state income taxes paid. This makes itemizing more advantageous. These deductions reduce taxable income, which in turn, reduces taxes due. Typically, personal interest, such as credit card or car loan interest paid is not deductible, but qualified residence interest (with a few restrictions) is fully deductible.
You can also deduct the interest on a second home mortgage (such as a vacation or mountain home), as long as the second home mortgage amount, when combined with the principal residence mortgage, does not exceed a combined total loan amount of $1,000,000. For example, if your principal residence mortgage equaled $700,000, and you purchased a second home with a mortgage of $600,000, you would be able to deduct the interest on your $700,000 principal residence mortgage and you would be able to deduct the interest on $300,000 of your second home mortgage ($1,000,000 – $700,000) for a total interest deduction on $1,000,000 of your mortgage balances.
The interest on home equity loan debt is also deductible. The home equity loan interest deduction is the interest on a loan amount that is the lesser of the loan balance, up to a $100,000 loan, or the fair market value of the home minus 
A final major tax advantage comes when it is time to sell your home. If you own and live in your home for two of five years and you haven’t sold another home within the two years prior to the sale date, the gain on the sale, up to $250,000 ($500,000 for married filing jointly), is excluded from income tax. The con side to this exclusion is that any loss on personal residence is not deductible.
Let’s face it, nobody likes to pay taxes. Taxes are a necessary evil to keep our government running. Understanding how taxes are levied might help ease the pain… or inspire you to get involved and have your opinion heard.
Usually your mortgage company escrows money from your monthly payment to cover your property taxes. Lenders do this to make sure the taxes on the home are being paid so there isn’t a lien placed on the property. The amount the property owner pays is determined by the fair market value of the property. An annual assessment program is used to calculate the amount. Owners pay a percentage, known as the property tax rate, on 100% of the fair market value as of January 1. Current years assessments are based on the past year sales. Assessed values are determined by a mass appraisal of similar properties that have been recently sold.
Don’t confuse an assessment with an 
Another way taxes are collected is at the settlement of the sale of all property. The Seller pays a Grantor’s tax, and in some jurisdictions a congestion relief tax. Both of these are calculated by a percentage of the value of the home, either the sales price or the appraised value, whichever is higher. The Virginia General Assembly currently has set the rate at $2.50 per $1,000. The purchaser pays recordation taxes to the county and state. These tax stamps vary between the jurisdictions and are sent to the clerk of the court.
Collecting Real Estate taxes is a large portion of revenue for both the state and local jurisdictions. In 2014, Real Estate construction contributed 6.1% to the nation’s economic output as measured by the Gross Domestic Product. Real Estate drives many facets of our economy, so therefore it makes sense that it is a large part of the tax base.