The 10 Best States for Property Taxes

College of Real Estate CORE The 10 Best States for Property Taxes

Finding an appropriate home is a difficult process. Many prioritize the community they will live in, while others want the best schools and infrastructure. Currently, property tax rates vary by state. In all 50 of the United States, laws require property owners to pay.

If you are considering a home search, it’s important to consider the taxes since they add to your monthly homeownership costs. 

Luckily for you, CORE Member, here is a basic rundown on the financial charges and a state-by-state list of property taxes to help you get started. Remember, that while the first step is completing any of these amazing blogs, the second and possibly more important step is taking action even if it’s imperfect action.

 

So, what are Property taxes?

College of Real Estate CORE The 10 Best States for Property Taxes GeneralProperty taxes are a key revenue source for local governments. These taxes are used to provide funding for municipal projects such as schools, road construction, public transportation, parks, and recreation programs. These funds also contribute to payroll costs for municipal employees including police officers, firefighters, and public works departments.

Property taxation varies across the United States, but if you live in one of the states with a higher property tax bill than you are able to pay, you can look to other places like Hawaii that have lower taxes. The mean effective property tax rate is 1.03% in 2019, according to data from the Tax Foundation. New Jersey has the highest rate at 2.13% and Hawaii has the lowest in the country at just 0.31%.

Property taxes are usually paid by homeowners in the form of a bill from the local government. The amount is based on the assessed value of your home and is dependent on tax rates in your state. Most U.S. homeowners have to pay these fees, usually monthly, in addition to their monthly mortgage payments. When you pay off your loan, you receive a bill for the tax from the local government at some point during the year.

While there are some exceptions, there is no state that doesn’t have property taxes, with a minimum levied in every U.S. state.

 

What are these taxes based on?

College of Real Estate CORE The 10 Best States for Property Taxes CalculationWhile your home’s assessed value for property taxes may match its actual value, that won’t always be the case. That gap can affect your tax amount. This includes land values as well as structures on it. So, vacant land will likely have lower real estate taxes due to a lower assessment value.

Assessment is based on a unit called a mill, equal to one-thousandth of a dollar. Assessors find annual property tax liability by multiplying three values: 1) the state tax rate, 2) the assessment ratio (portion of the property value subject to tax) and 3)  property value.

The value of properties does fluctuate due to the market and state. States assess the value of properties differently, some annually and others every couple of years.

 

There are no states with no property taxes. Here are the states with the lowest

Hawaii

College of Real Estate CORE The 10 Best States for Property Taxes Hawaii TaxEffective Property Tax Rate (2019): 0.31%

Typical Home Value (2022): $828,0026

Annual Taxes on Home Priced at State Typical Value: $2,566.81

Median Household Income (2019): $83,1028

Median home price $702,288

Hawaii has the lowest effective property tax rate in the country, however, it is one of the most expensive states to live in. Hawaii has the highest median home value, which means that homeowners spend more money on their homes than they might in other states.

 

Alabama

College of Real Estate CORE The 10 Best States for Property Taxes Alabama TaxEffective Property Tax Rate (2019): 0.37%4

Typical Home Value (2022): $189,9766

Annual Taxes on Home Priced at State Typical Value: $702.91

Median Household Income (2019): $51,734

With a low property tax rate, Alabama is a relative bargain for home buyers. The state has an average home price of $334,500 in 2021, according to the National Association of Realtors. It is below the median home value in the United States.

 

Colorado

College of Real Estate CORE The 10 Best States for Property Taxes Colorado TaxEffective Property Tax Rate (2019): 0.52%

Typical Home Value (2022): $545,7946

Annual Taxes on Home Priced at State Typical Value: $2,838.13

Median Household Income (2019): $77,1278

As one of the most affordable states to live in overall, it had the third-lowest cost of living in the country in 2021.9 However, Alabama also had a relatively high poverty rate in 2019, with 15.5% of its population living below the poverty line.

 

Louisiana

College of Real Estate CORE The 10 Best States for Property Taxes Louisiana TaxEffective Property Tax Rate (2019): 0.51%

Typical Home Value (2022): $203,2226

Annual Taxes on Home Priced at State Typical Value: $1,036.43

Median Household Income (2019): $51,07312

Like several Southern states, Louisiana is a good place to live, with low taxes and low median home values. It also has some of the lowest gas taxes in the country.

 

Wyoming

College of Real Estate CORE The 10 Best States for Property Taxes Wyoming TaxEffective Property Tax Rate (2019): 0.51%

Typical Home Value (2022): $303,325

Annual Taxes on Home Priced at State Typical Value: $1,546.9

Median Household Income (2019): $65,003

While Wyoming home values aren’t as low as some other states on our list, the state does have no income tax and its sales tax is among the lowest in the country in 2021. Additionally, while Wyoming did have a moderate cost of living in 2021, it also had a solid median household income and a lower poverty rate than most states in 2019. Its total gas tax of 24 cents is also on the lower side.

 

South Carolina

College of Real Estate CORE The 10 Best States for Property Taxes South Carolina TaxEffective Property Tax Rate (2019): 0.53%

Typical Home Value (2022): $261,882

Annual Taxes on Home Priced at State Typical Value: $1,387

Median Household Income (2019): $56,227

West Virginia and South Carolina have the same effective property tax rate of 0.53%, but with South Carolina’s lower home values, the state has a much lower cost of living. Outside of its higher electricity, water, and other similar costs, South Carolina had a very low cost-of-living index in 2021. Similar to several Southern states, its poverty rate was also high in 2019.

 

West Virginia

College of Real Estate CORE The 10 Best States for Property Taxes West Virginia TaxEffective Property Tax Rate (2019): 0.53%

Typical Home Value (2022): $126,948

Annual Taxes on Home Priced at State Typical Value: $672

Median Household Income (2019): $48,850

A low effective property tax rate and modest home prices further provide West Virginians with cheaper housing and fewer taxes. The state’s overall cost of living was among the 10 best in the country in 2021, as was its gas tax rate in 2021. Conversely, at 16%, the poverty rate was notably higher than that for most states. The state’s combined state and local sales tax rate of 7.46% was also higher than average when compared to other states.

 

How much revenue do state and local governments raise from property taxes?

In 2019, local and state governments earned $577 billion in property tax revenue, or 17% of total general revenue. Property tax revenue as a percentage of state and local general revenue was higher than sales tax, individual income tax, and corporate income tax revenue.

Property taxes are not a large source of revenue for states because typically states tax personal property but not real property. (The Census does not provide a separate count for each type of property tax.) State governments collected $18 billion from property taxes in 2019, or 1 percent of state general revenue. In contrast, property taxes are one of the largest sources of revenue for local governments. Local governments collected $559 billion from property taxes in 2019, or 30% of local general revenue.

 

Which states are most reliant on property tax revenue?

College of Real Estate CORE The 10 Best States for Property Taxes DocsAll states have property taxes. In 2019, New Hampshire was the most reliant on revenue from property taxes, as they accounted for 36 percent of the state’s total revenue. The next most reliant states were New Jersey, Maine, Connecticut and Nevada. Ten states collected 20% or more of their general revenue from property tax collection in 2019.

In contrast, Alabama, Arkansas, Delaware, Kentucky, Louisiana, New Mexico, Oklahoma and West Virginia collected less than 10 percent of their general revenue from property tax revenues. 

Property taxes accounted for nearly half (46 percent) of own-source local general revenue. In 2019, property tax collections were more than three-quarters of local own-source general revenue  in Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, and Rhode Island. In contrast, Alabama’s local governments collected just 21 percent of their own-source revenue from property taxes, the lowest percentage in any state.

 

At the state level, property tax accounted for 1% of state’s own-source revenue in 2019. However, Vermont’s property tax contributed 25% of its own revenue of the general fund, far and away the highest percentage in any state. Nearly all of Vermont’s education spending is financed at the state level, and the state’s property tax on real property is the largest source of that funding. The next-highest percentages were in New Hampshire and Washington (9% each) because these states also use property taxes to fund their state-level K-12 education spending.

Property taxes were also 7% or more of state own-source revenue in Arkansas, Montana, and Wyoming. In addition to business equipment and cars, property taxes are sometimes levied on land that is used for utilities.

 

How much do real property tax rates differ across the country?

Real property tax rates can vary both across and within states, making it difficult to compare states against each other. Further, local governments have different methods of calculating their real property tax bases and assessment levels.

Every jurisdiction’s property tax requires at least three steps:

The assessor will determine the value of each property, calculate how much is taxed, and then apply the tax rate to the taxable value of each property.

 

Are there any states with no property taxes?

College of Real Estate CORE The 10 Best States for Property Taxes DocumentsThe fifty states and the District of Columbia all have different property taxes, but some people qualify for a tax exemption. Some states offer homestead exemptions and programs for older homeowners, disabled people, military veterans, and homeowners who make renovations or install renewable energy systems like solar panels.

There may be different definitions to what commonly means exemption, such as a tax deduction, which only lowers an individual or group’s tax liability. Individuals who are eligible for these exemptions include senior citizens, STAR (School Tax Relief) participants, those with disabilities and veterans. Certain government, nonprofit, and religious entities or properties may also fall under an exemption.

The property tax exemption programs are usually conducted for vulnerable homeowners and owners or low-income residents. However, in addition to homestead relief, taxpayers who live in certain areas may also qualify for other exemptions. This can result in tax savings of thousands of dollars per year.

 

The eligibility for assistance varies depending on the laws established by your state, your local government and your situation. Check with the appropriate local services for help navigating this program.

Real property taxes are typically based on how much the property would sell for in an arms-length transaction. However, there are other calculations for assessing a property’s value. Some jurisdictions base their assessed value on the last sale price or acquisition value of the property, the income a property could generate (e.g., hotels), or solely on the size or physical attributes (e.g., design or location) of the property. The timing of assessments also varies, with some jurisdictions assessing annually and others going multiple years between assessments.

College of Real Estate CORE The 10 Best States for Property Taxes HomesSome jurisdictions impose their tax on the entire assessed value of the property, while others tax only a fraction of the assessed value. For example, South Carolina counties impose tax on only 4 percent of an owner-occupied property’s assessed value, while the District of Columbia taxes 100 percent of a property’s assessed value. This means that if you calculate the total property tax rate in South Carolina you will find it to be higher than in DC and it would not be reasonable to conclude that DC has lower taxes.

Some local jurisdictions also impose different tax rates on property, usually distinguishing between residential and business properties. And while property tax rates can vary considerably within the state, some states impose a statewide limit on the maximum rate.

A few major examples are as follows:

 

Assessment Limits

Assessment limits prevent a property’s assessed value from increasing by more than a fixed percentage between assessments. These limits generally reduce a property’s assessed value below its actual market value and thus prevent rapid property value increases from raising the owner’s tax burden. Assessment limitations often occur even if the land was sold, its assessed value is reset at its market value. Otherwise, in 2020 there were 17 states and the District of Columbia that had some type of assessment limitation. The calculation of an assessment limit (which is different across states) can vary depending on how much the land is worth or what related factors were considered.

 

Homestead Deductions

Homestead deductions or exemptions lower the taxable value of real property by a fixed amount. While every state has residency qualifications for claiming a homestead exemption, some states have further eligibility qualifications based on age, disability, income, or veteran status. Nearly every state and the District of Columbia offers some sort of homestead exemption or credit in 2018.

 

Circuit Breaker Program

Circuit breakers allow the elderly or low-income residents to reduce their tax liability if they make payments disproportionately high relative to their income. Unlike the other approaches described here, circuit breakers can benefit renters as well as homeowners in some jurisdictions. Thirty-three states and the District of Columbia offered some form of circuit breaker program in 2020. In 18 of these states and the District of Columbia, renters were allowed to take advantage of the taxpayer relief.

 

Property Tax Deferrals

College of Real Estate CORE The 10 Best States for Property Taxes PapersProperty tax deferrals allow elderly and disabled homeowners to defer payment until the sale of the property or the death of the taxpayer. For example, in twenty-three states and the District of Columbia, property tax deferrals were available in 2020, but they are not widely used.

In addition, relief programs can create significantly different tax burdens among homeowners in a particular jurisdiction with similar home values, even if they pay the same tax rate.

In this scenario, policies like those featured in the example used could benefit individual homeowners and lead to lower property taxes. However, various studies have shown that property tax assessments and appeals outcomes can disproportionately help white homeowners and disproportionately burden Black and Latino households. This can make a locality’s property tax system more regressive than it appears.

 

Depending on where you live, you may qualify for a property tax exemption offered by your state, county, or local jurisdiction. For example, some states offer a homestead exemption, where you don’t pay taxes on a certain portion of your home’s value—say, the first $150,000—if you meet certain age or income requirements following the death of a homeowner spouse or the declaration of bankruptcy.

There are a variety of exemptions from property taxes that may be available. These include those for younger homeowners, people with disabilities, military veterans, and homeowners who do certain renovations or install renewable energy systems such as solar panels. Unfortunately, some of these are only visible on the tax bill when it arrives at your doorstep.

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