Florida Real Estate Broker ExaminationReal Estate Finance and InvestmentHard
A Florida real estate broker is advising a client on the impact of property taxes on investment returns. The client owns a commercial property that was assessed at $800,000. The local tax rate is 20 mills. How much will the client pay in annual property taxes?
- A$16,000
- B$1,600
- C$40,000
- D$4,000
Show answer & explanationAnswer & explanation
Correct answer: A. $16,000
A mill is $1 per $1,000 of assessed value. So, 20 mills is $20 per $1,000. To calculate the tax, divide the assessed value by 1,000 ($800,000 / 1,000 = 800) and then multiply by the number of mills (800 * $20 = $16,000). Alternatively, convert mills to a decimal (20 mills = 0.020) and multiply by the assessed value ($800,000 * 0.020 = $16,000).
Why the other options are wrong
- B. This incorrectly calculates 2 mills instead of 20 mills, or divides by 100,000 instead of 1,000.
- C. This incorrectly calculates 50 mills or multiplies by 0.05 instead of 0.02.
- D. This incorrectly calculates 5 mills or uses a wrong divisor.
Millage Rate Calculation
A millage rate is the tax rate applied to the assessed value of real estate, expressed in mills (dollars per $1,000 of value).
- One mill equals $1 per $1,000 of assessed value.
- Taxable value is often the assessed value minus exemptions.
- Used by local governments to fund public services.
Memory trick: Mills: Divide by a grand, then multiply by the rate in hand.