The Ad Valorem tax is a tax assessed on the value of an underlying asset. A Non-Ad Valorem tax is a specific assessment that remains constant regardless of the asset’s underlying value.
The distinction between Ad Valorem and Non-Ad Valorem is important for U.S. federal tax purposes. For example, homeowners in the U.S. are generally allowed to deduct property taxes paid on their principal residence as an itemized deduction on Schedule A (Itemized Deductions). However, the deductible amount is limited to the Ad Valorem portion of the property tax bill. If their property tax bill includes any Non-Ad Valorem charges, those are not deductible as an itemized deduction.1
Example of Ad Valorem for Property Taxes
Jane Doe owns a single-family home in Orlando, FL. Jane’s house is currently worth about $500,000; however, the assessed value for property taxes is $400,000. Jane uses the property as her homestead, so she receives a $50,000 homestead exemption, which makes the taxable value $350,000. Jane’s property tax bill has two sections: Ad Valorem Taxes and Non-Ad Valorem Assessments.
The Ad Valorem section lists the taxing authority, the millage rate, the taxable value, and the taxes levied. The “General County” millage rate for Jane’s area is 4.4347, which means Jane must pay $4.4347 per $1,000 of taxable property value. Jane’s general county property taxes are $1,552.14 ($350,000 times (4.4347 / 1,000)). The general county tax is an Ad Valorem tax because the taxable property value determines Jane’s tax liability for that specific item.
In addition to the general county taxes, Jane must also pay taxes for public schools, unincorporated county fire, unincorporated taxing district, library operating budget, and the St Johns water management district. Each of these taxes is an Ad Valorem tax with different millage rates.
The Non-Ad Valorem assessments are in the second section of Jane’s property tax bill. The section includes the levying authority, assessment description, number of units, and dollar amount of the assessment. This section does NOT include any millage rates or taxable value figures because these assessments are levied on a per-property basis and are not impacted by the property’s value.
Jane’s total property tax bill includes the combined Ad Valorem and Non-Ad Valorem assessments; however, Jane can only include the Ad Valorem taxes paid as itemized deductions on her Schedule A.
View our video tutorial on how to complete Schedule A when your property tax bill includes both Ad Valorem and Non-Ad Valorem charges.
More Information on Property Tax Deductions
Taxpayers can find more information related to property tax deductions in the Schedule A Instructions and in IRS Publication 530 (Tax Information for Homeowners).