Chapter 03: Property Taxation and Assessment

Question 1

The current market value of a property is $135,000. For tax purposes, it is assessed at 60% of market value. The tax rate is $2.45 per $100 of assessed value. What is the annual tax liability?
A. $1,190.40
B. $1,323.75
C. $1,984.50
D. $3,307.25

Answer 1

C. $1,984.50
(Taxes are based on assessed value. $135,000 (Market Value) x 60% = $81,000 (Assessed Value). $81,000 x .0245 = $1,984.50)

Question 2

2 of 10
Which of the following liens generally holds first priority?
A. mortgage lien
B. purchase money lien
C. ad valorem real estate tax lien
D. federal income tax lien

Answer 2

C. ad valorem real estate tax lien
(Real property taxes are ad valorem taxes which means that they are levied according to value. Real estate tax liens are in first position and get top priority regardless of when the taxes were incurred)

Question 3

What will be the amount of tax payable when the property’s original assessed value is $185,000 then a 10% horizontal adjustment is made to all assessed values and the tax rate is 40 mills in a community?
A. $4,625
B. $5,087
C. $7,400
D. $8,140

Answer 3

D. $8,140
(Mills are a tax calculation that is the same as “per $1,000 of value.” A horizontal adjustment means that all assessed values in a particular area have been adjusted similarly. $185,000 + 10% increase makes the assessed value $203,500. $203,500 x .04 (40 Mills) = $8,140)

Question 4

Charges levied on a property owner and limited to those living in a particular neighborhood to pay for the installation of sewer and water lines are:
A. ad valorem taxes
B. general property taxes
C. special excise taxes
D. special assessments

Answer 4

D. special assessments
(Special assessments are liens levied against particular properties. They can be levied for items such as sewer and water liens, sidewalks and street lights. Special assessments are typically not levied on an ad valorem basis but on a front foot basis)

Question 5

The ad valorem property tax rates may be adjusted every:
A. year
B. two years
C. four years
D. eight years

Answer 5

A. year
(Tax rates can adjust annually. The NC Machinery Act requires a reappraisal of the property every eight years (an octennial appraisal) and horizontal “across the board” adjustments can be made every four years)

Question 6

Jack bought a home for $125,000 with an ad valorem tax assessed value of $130,000. The following year, a horizontal adjustment of a 15% increase in assessed value occurred. If the new tax rate is $1.678 per $100 of assessed value, what are the annual taxes?
A. $2,097.60
B. $2,508.61
C. $2,181.40
D. $2,412.13

Answer 6

B. $2,508.61
(Taxes are based on assessed value and horizontal adjustments are across the board adjustments for homeowners. $130,000 + 15% ($19,500) = $149,500 x .01678 ($1.678 per $100) = $2,508.61)

Question 7

What is the monthly tax liability on a property assessed at $133,000 if the published tax rate is $1.50 per $100 of assessed value? The sales price of the property was $150,500. The vacancy rate in the area is 6%. The market capitalization rate is 8%.
A. $166.25
B. $188.13
C. $2,257.50
D. $886.67

Answer 7

A. $166.25
(Taxes are based on assessed value. $133,000 x .015 ($1.50 per $100) = $1,995. The problem asks for the monthly tax liability. $1995 ÷12 = $166.25)

Question 8

What is the assessed value of a house if the tax rate is $1.30 per $100 of value and the owner’s annual taxes are $1,599?
A. $12,300
B. $32,000
C. $123,000
D. $132,000

Answer 8

C. $123,000
(The taxes are $1,599÷a rate of .013 ($1.30 per $100) = $123,000)

Question 9

A home with a market value of $190,000 is located in a city where the assessed value is 80% of market value. The county tax rate last year was 0.75 per $100 and the city tax rate last year was 0.85 per $100. The tax rate increased 10% this year. What is the new property tax on this house?
A. $2,432
B. $2,675.20
C. $2,150
D. $3,344

Answer 9

B. $2,675.20
(The home has an assessed value of $152,000 ($190,000 x 80%). The previous tax rate was $1.60 per $100. (0.75 + 0.85). The new tax rate is $1.76 per $100. (1.60 +0 .16). A value of $152,000 x .0176 (1.76 per $100) = $2,675.20)

Question 10

When the real estate property taxes have been paid by the owner and the property is sold before the end of the year, what is the appropriate entry for the accounting of the taxes on the HUD-1 settlement statement?
A. debit the buyer and credit the seller
B. credit the buyer and debit the seller
C. credit the buyer and the seller
D. debit the buyer and the seller

Answer 10

A. debit the buyer and credit the seller
(If the owner has already paid the taxes for the year at the time of closing then they will be entitled to a credit for the amount they overpaid. At closing the new buyer would be debited for the balance of the year and those funds would be credited to the seller)