A residential property in Honolulu County has an assessed value of $850,000. The owner qualifies for the county's homeowner exemption, which reduces the assessed value by $100,000 for tax purposes. The applicable property tax rate is $3.50 per $1,000 of net assessed value. What is the owner's annual property tax bill?
Correct Answer
A) $2,625
Step 1: Apply the homeowner exemption to find the net assessed value: $850,000 − $100,000 = $750,000. Step 2: Convert the net assessed value to units of $1,000: $750,000 ÷ $1,000 = 750 units. Step 3: Multiply by the tax rate: 750 × $3.50 = $2,625. The annual property tax bill is $2,625.
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The income approach estimates a property's value based on the income it generates by converting net operating income into a value estimate using a capitalization rate. It is the preferred method for income-producing properties.
Many states have laws to limit how much property taxes can increase each year, regardless of market value fluctuations.
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