Private property like real estate, usually known as real property, is assessed to give it a value. That value is then taxed. The amount of property tax owed is determined by multiplying the fair market value of the property by the current tax rate. Property must be appraised or assessed periodically to determine whether its value has increased or depreciated. The tax burden is then adjusted to reflect these changes.

For example, if a person owns a vacant piece of land, the assessed value would be lower than that of improved properties. Once that property is improved in any way, such as by clearing the land, building a structure or bringing electric, phone or water service to the property, the value increases. In turn, the tax burden increases as improvements are assessed.

Property tax payments are due annually in most cases, although the annual amount is frequently divided into periodic installments. This may mean quarterly payments, which is common with commercial property. With homes, it is often charged in monthly installments, which may be added to mortgage payments.

Property tax is known by other terms as well, sometimes referred to as a realty tax because it is most often levied against real estate. It is also called an ad valorem tax, which simply means the tax rate is established by the value. There are also different kinds of property taxes, such as personal property tax. This is usually assessed and charged separately from real property tax and includes personal possessions like automobiles, motorcycles, campers and boats.

Local governments such as cities and counties derive revenue from property tax. Property tax revenue is generally used for government administration and expenses for first responders such as law enforcement officers, firefighters and paramedics. It is also used to fund local courts. Property tax also helps pay for services including community programs, parks, civic centers, libraries and schools. Quite often, school districts receive a large portion of property taxes.

Typically, the state also collects a portion of property tax revenue. In the United States, the power to levy and collect any type of property tax is considered a state's rights issue. It is not readily recognized as one of the powers of the federal government.