What type of tax is calculated based on the assessed value of real estate?

Ad valorem taxes are a type of tax that is calculated based on the assessed value of real estate. This tax is typically levied by local governments to fund public services such as schools, infrastructure, and emergency services. The term "ad valorem" comes from Latin, meaning "according to value," which reflects that the tax is proportional to the value of the property in question.

When a property is assessed, a value is determined by a local assessor based on various factors such as the property's size, location, condition, and recent sales data for similar properties. The resulting assessed value forms the basis on which the ad valorem tax is calculated, usually by applying a tax rate that is set by local authorities. This mechanism ensures that property owners contribute to the costs of local services in accordance with the value of their properties.

In contrast, income tax is based on an individual’s or corporation’s earnings; value-added tax is imposed on the value added at each stage of production or distribution; and capital gains tax is levied on the profit from the sale of an asset. These other types of taxes do not factor in the assessed value of real estate, making ad valorem taxes a distinct and relevant choice in this context.