Are you currently searching for your first home in Middle Tennessee? If so, it’s essential that you formulate your budget differently than you have as a renter. In addition to the costs of your base mortgage payment, your interest payment, and property tax will also be due monthly.

Additional scheduled and unexpected costs like routine maintenance costs, repairs, and homeowners’ insurance must also be accounted for. Your true costs will be far different from a simple monthly repayment of the principal on your loan.

Today, we’re explaining everything you need to know about property taxes as a homeowner in Middle Tennessee. Let’s dive into rate calculation, payment rules, and the consequences of falling behind. Take a deep breath—you’ve got this!

Why Will I Be Charged Property Tax?

Part of what makes Middle Tennessee such a great place to live is our natural setting, certainly, but the rest comes down to the incredible community by which we’re surrounded. In order to help fund our police and fire departments, road maintenance, and schools, homeowners are responsible for paying property tax.

How Much Will I Need to Pay?

In Tennessee, tax on residential properties, whether said home is vacant, rented out, or used as the homeowner’s primary residence, is calculated based on a property’s appraised value. If tax jargon isn’t your favorite, you’ll be pleased to learn that there are only a few relevant terms to know. Each will help you calculate property tax on any home you are considering.

Assessed value: The value of your home as declared by a government employee called a property assessor. This value is not the purchase price of your home, nor is it the price your home could command if placed on the market at any given time. The assessed value tends to be lower than either, however, which will be to your benefit.

Assessment ratio: Tennessee sets this value rather than requiring homeowners to calculate it. The assessment ratio for a residential property is 25%. 

Assessed value: The product of multiplying your home’s appraisal value by the assessment ratio.

Once you have your appraised value and this assessment ratio, you’ll multiply these figures together. Finally, multiply this product by the tax rate. The precise tax rate you’ll have to pay will depend on your home’s location.

Let’s assume your home’s appraised value is $300,000. The assessed value will be $75,000, or 25% of your appraised value. The tax rate in the General Services district is $2.922 per hundred of this assessed value, so we need only divide $75,000 by 100. The resulting figure of 750 multiplied by $2.922 is $2191.50, which is your total property tax due in the coming year.

When Will I Pay My Property Taxes?

Usually, your mortgage payments will include your property taxes. You won’t have to remember to pay your property taxes separately or get hit with a lump sum bill each year. However, it should be noted that you can elect to pay your property taxes separate from your mortgage if you’d prefer. Either way, your full monthly expenditures on your new home will have an enormous impact on your overall household budget.

How Much House Can I Afford?

As a general rule, your mortgage payment and property taxes should not exceed 25% of your take-home pay. Therefore, if your household take-home pay is $8,000 each month, you can afford a monthly housing expenditure of no more than $2,000. It’s important that you choose a region in which you can afford as much house as you’ll require to comfortably fit your lifestyle.

The property tax rate in an urban area will be different from the rate in a more rural part of the state. To get a better idea of how your location will impact your property taxes, you can use this table to see the tax rates in and outside of cities throughout Tennessee in 2022. 

What Will Happen if I Do Not Keep Up on My Taxes?

Even if you are fully current on your principal mortgage payments, you must also remain current on your property taxes. Should you fail to do so, the consequences can include losing your home. Even if you do stave off foreclosure, you’ll be charged huge penalties for late property tax payments.

Clearly, the risks are massive when compared with the relatively low cost of property taxes in Tennessee. Therefore, it’s crucial that you only purchase as much home as you can afford.

Taxes Due, Taxes Deducted 

Keep in mind that home ownership can bring tax breaks. Among these is the opportunity to deduct your property tax payments from your federal income tax returns; the only requirement is for you to have fully paid your property taxes by the deadline.

The Takeaway

Few of us truly enjoy planning for tax payments, paying throughout the year, or filing our tax returns by the mid-April deadline. Still, this information will be helpful to your goal of overall financial success! 

Choose your region generally, and address specifically, with your property tax burden in mind, and you’ll feel far more in control of this fluctuating expense.

If you would like assistance understanding how your Middle Tennessee property will be impacted by tax law, your agent will be happy to help.

For in-depth financial planning related to not only your home purchase but also your retirement goals, we strongly encourage you to work with a personal accountant on an ongoing basis.

Posted by Parks Real Estate on


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