What is Ad Valorem Tax?
An ad valorem tax is a property tax levied based on the value of the property in question.
How does Ad Valorem Tax work?
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.
[InvestingAnswers Feature: The Most Important Tax Changes to Know Before Filing Your Tax Return]
Why do Ad Valorem Taxes matter?
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.
