Ad Valorem Tax

An ad valorem tax is a tax based on the value of real estate or personal property. Ad valorem is Latin for “according to value.”

One example of an ad valorem tax is property tax, which a real estate owner pays on the value of the property being taxed. There are three kinds of property: land, improvements to land, and personal. The taxing authority requires an appraisal of the value of the property, and the tax is assessed according to that value. Types of property tax vary from state to state.

Another example of an ad valorem tax is land value taxation (LVT), which is assessed on the value of land. This tax does not take into account buildings, improvements, or personal property. Thus, LVT is different from other property taxes on real estate (the combination of land, buildings, and improvements to land). All real estate property tax has an element of land value tax because land value is part of overall property value.

Ad valorem taxes (primarily real property tax and sales tax) are a major source of revenue for state and local governments, especially in states without a personal income tax.

By: Present Value

Tags: ad valorem tax, LVT
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