Andrew DePietro, Contributor
Sept. 1, 2023
Looking for a new home — or perhaps a second one — involves weighing multiple factors. One crucial aspect many prioritize is the community where the home is located. However, contributing to the local amenities such as schools and public works means paying property taxes. And if you want to avoid the exorbitant costs of sending your kids to private primary and secondary schools, then you need a town that has a good public school, which typically means the property taxes there may be higher than average.
Every state in the U.S. mandates most homeowners to pay these taxes, but the rates differ from state to state. If you're diving into the real estate market , it's essential to factor in the property taxes of your desired location, as they will impact your overall costs of owning a home. In order to help, we put together a full breakdown of the property tax rates, and property tax amount paid, in all 50 states plus the District of Columbia.
Read on to find out which states have the lowest property taxes and which states have the highest.
What is Property Tax?
Property tax, referred to by the Census Bureau as real estate tax, is a fee homeowners pay to their local or county tax bodies. The amount you pay in property taxes is determined by the valuation of your property and the criteria for how this valuation is conducted typically differs depending on your state's tax policy. The thing about property taxes is that a direct state-to-state comparison is made difficult by the fact that property taxes are usually collected by an authority on the county-level or similar local-level units, for example, a large university in a college town may have its own property tax body .
Several different levels of government can contribute to your property tax rate, including the state, the county, and any other similar kind of municipality. More often than not, though, property taxes are handled on the county level. In the U.S., the majority of homeowners pay this tax, typically monthly, alongside their mortgage installments. If you've cleared your mortgage, the local government will periodically send you a tax invoice throughout the year.
The funds collected from property tax are channeled back into the community. They're allocated for everything, from building and repairing roads to sustaining local education institutions to maintaining the pillars of public safety, firemen and policemen .
Property Tax Rates by State
As mentioned, property tax rates are generally determined on the county level, in contrast to personal income tax rates, which are usually determined on the state level (though counties and cities do sometimes tack on their own income taxes in addition to the state’s). However, a useful way to get a good comparison of property taxes by state is to use the following data sourced from the Census Bureau’s 2021 American Community Survey 5-Year Estimates :
- Aggregate home value on the state level
- Aggregate property taxes paid on the state level
- Median home value on the state level
- Median property taxes paid by state level
Using these four different datasets from the Census Bureau, we can construct two property tax rates to gauge each state by.
- Mean effective property tax rate: Calculated by taking the aggregate property taxes paid and dividing it by the aggregate home value for the state.
- Median effective property tax rate: Calculated by taking the median property taxes paid and dividing it by the median home value on the state level.
Here is a list of states in alphabetical order but includes the ranking position — 1 being the state with the lowest property tax rate and 51 (because the inclusion of D.C.) being the state with the highest property tax rate. The table is also sortable by column header.
States with the Lowest Property Taxes
For a long time now, Hawaii has consistently ranked at or near No. 1 as the state with the lowest property tax rate. Whether using its median property tax rate — 0.286% — or its mean (average) property tax rate — 0.315% — Hawaii beats all other states, plus D.C., with its low rates. Hawaii is then followed by a mixture of states in the U.S. South region and Mountain division:
- South Carolina
- West Virginia
- District of Columbia
States with the Highest Property Taxes
The Northeast and the Midwest very much dominate the list of states with the highest property tax rates. There are many, many factors and reasons why the states in these two regions have historically been on the higher side. Reasons can range from a state having a large number of high-quality public schools, which can be expensive and require higher property taxes to sustain them; to a state having no income tax and fewer taxes overall, like Texas, and thus, in a way, compensate by having higher property taxes. The top 15 states with the highest property taxes are:
- New Jersey
- New Hampshire
- New York
- Rhode Island
How Are Property Taxes Calculated?
Determining property taxes for a home in the U.S. involves a multistep process that integrates property valuation with local tax rates. The process usually begins with an appraisal of your home’s value and ends with you paying the calculated amount, but periodically your home’s value will be reassessed, because the county or other local governing authority needs to make sure the property taxes you’re paying accurately reflect the current market value of your house.
Below you’ll find an overview of how it typically works:
Property Appraisal and Assessment
Appraisal : This is the process of estimating the market value of the property. Local government agencies or independent professionals, depending on the jurisdiction, conduct property appraisals. They evaluate several factors, including the property's size, condition, improvements, and recent sales of comparable properties in the vicinity.
Assessment : Once the market value is determined, the local assessor calculates the assessed value. This isn't always equal to the market value; it may be a percentage of it, depending on local regulations. The assessed value is the value on which the tax will be based.
Setting the Tax Rate (Mill Levy)
Different entities within a jurisdiction (again, for example, the county, city, and school district) will each set their tax rates. These rates are often based on the budgetary needs of these entities. Hence, for instance, why towns with notably strong public schools tend to have higher property taxes.
These individual rates are then combined to create the total mill levy for a property. One mill represents $1 in tax for every $1,000 of assessed property value. If the combined mill levy from all entities is, for instance, 100 mills, the tax rate would be 10% of the property's assessed value.
Determining the Assessment Ratio
Not all states use the full assessed value to calculate taxes. Instead, they might use a percentage known as the assessment ratio . For instance, if the assessment ratio is 80%, and a home's assessed value is $200,000, taxes would be calculated on $160,000 of that value.
Calculating the Property Tax
The formula for calculating property tax is as follows:
- Property Tax = (Assessed Value x Assessment Ratio) x Mill Levy
Using the previous example, if the mill levy is 10% and the assessed value is $200,000 with an assessment ratio of 80%, the tax would be $16,000: $200,000 multiplied by 0.80 multiplied by 0.10 equals $16,000.
Accounting for Exemptions and Discounts
Many jurisdictions that offer certain exemptions, rebates, or reductions in property taxes for specific groups, like seniors, veterans, or those with disabilities, have to reconcile their accounts for these special exemptions and discounts. What’s more, there may also be homestead exemptions, which reduce the taxable value of a property for homeowners who use the property as their primary residence.
Billing and Payment
Once the amount is determined, the local tax authority issues a bill to you — the property owner. This can be paid in various ways, always depending on the locality, but it tends to be monthly, quarterly, biannually, or annually. Often, homeowners with mortgages pay property taxes through an escrow account, where the lender collects and pays the taxes on their behalf.
Properties aren't assessed every year in all jurisdictions. Some areas might reassess values annually, while others might do it every two, three, or even five years. This ensures that the taxes reflect the property's current market value.
If a homeowner believes their property's assessed value isn't accurate or fair, they usually have the right to appeal. The specific appeal process varies by jurisdiction but often requires the homeowner to present evidence, like a private appraisal, supporting their claim.
This entire process, in theory and ideally, ensures that property taxes are correctly proportional to each property's value and the financial needs of local government entities.
Are There States with No Property Tax?
While the idea of a U.S. state with no property taxes sounds enticing, there isn't any state in the U.S. that completely foregoes property taxes. Property taxes represent a significant source of revenue for local governments and are essential for funding critical services such as public education, law enforcement, fire departments, infrastructure maintenance, and other essential local services. Property taxes are pretty fundamental to running of any municipality in America.
However, there could be considered one state with no property tax, but it is due to a major technicality. While some states might not impose property taxes at the state level, all states permit or require local governments, such as counties and municipalities, to collect property taxes. For instance, Alaska doesn't have a statewide property tax, but local governments within Alaska do levy property taxes. Thus, Alaska could be said to be a state with no property tax, but only in the strictest, technical meaning of the term. Additionally, several states offer generous exemptions or rebates to specific groups, reducing their property tax burdens.
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