Ad Valorem Tax
What It Is:
An ad valorem tax is a property tax levied based on the value of the property in question.
How It Works/Example:
Ad valorem (Latin for "according to the value") taxes are levied solely as a percentage of a property's market value without regard to quantity or intrinsic value. For instance, if the market value of a 2,000 square-foot home is $100,000, the ad valorem tax levied will be based solely on the home's $100,000 value, regardless of its relative physical size. Municipal property taxes are an example of an ad valorem tax.
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Why It Matters:
Property owners upon whom ad valorem taxes are levied bear risk commensurate with movements in the market value of their property. This is to say that during a strong real estate market, some homeowners may incur an ad valorem tax burden beyond their means.
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Cached on May 24, 2012, 12:02 pm