David is purchasing a home in Cranston, Rhode Island for $480,000. The city assesses property at 100% of market value. The current Cranston mill rate is $18.75 per $1,000 of assessed value. Additionally, Rhode Island imposes a real estate conveyance (deed excise) tax of $2.30 per $500 of the purchase price (or fractional part thereof). Assuming David's purchase price equals the assessed value, what is David's annual property tax obligation to the City of Cranston?
Correct Answer
A) $9,000
Step 1 — Identify the assessed value: The problem states Cranston assesses at 100% of market value, so assessed value = $480,000. Step 2 — Apply the mill rate formula: Annual Property Tax = (Assessed Value ÷ $1,000) × Mill Rate = ($480,000 ÷ $1,000) × $18.75 = 480 × $18.75 = $9,000. The annual property tax owed to Cranston is $9,000. Note: The conveyance tax information is included as a distractor; it is a one-time transfer tax paid at closing, not part of the ongoing annual property tax.
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Related Topics & Key Terms
Key Terms:
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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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