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Paul Tracy

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Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

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Updated August 9, 2020

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.

[InvestingAnswers Feature: How to Avoid an IRS Audit]

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