If you own a home or plan to buy one, be prepared to pay your share of property taxes. Local and state governments collect and use these taxes to fund community services and resources such as schools, roads, police and fire departments, sanitation and more.
Curious what the rate of property taxes by state is in 2024? Read on to learn more about how real estate taxes are calculated, how and why taxes by state can vary, the lowest property taxes by state versus the highest property taxes by state, and ways you may pay less on property taxes.
Key Takeaways:
- Property taxes can be a significant expense for homeowners.
- The amount you owe for state or county property taxes is generally determined by the assessed value of your property, which is typically a percentage of its fair market value.
- You can lower your property taxes by qualifying for various exemptions, such as homestead, senior, veteran, disability or income-based exemptions.
What Are Property Taxes?
A property tax is a fee based on the value of a home and the land it sits on. Also known as ad valorem taxes, property taxes are a significant expense for homeowners or those considering buying a home. Property taxes are levied on the assessed value of real property, which includes land and anything permanently attached to it, like buildings and structures.
Property taxes are the largest source of revenue for state and local governments in the United States, providing over 30% of total state and local tax collections and more than 70% of total local tax revenue. These funds support essential services like schools, roads and police.
According to the Tax Foundation, property taxes operate on the “benefit principle,” where the amount paid is aligned with the services provided. Residents generally benefit from the state and local services their property taxes support.
Property tax rates vary significantly across states and municipalities. But rates aren’t the sole factor affecting how much taxpayers pay. The scope of what is or is not considered taxable – the property tax base – can also influence business investment and moving decisions.
Property and real estate taxes refer to taxes on owned real estate. They should not be confused with personal property tax, which applies to mobile assets such as cars, boats and planes.
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How Are Property Taxes By State Calculated?
Property taxes vary widely from state to state. According to the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence, property taxes differ by state and area due to four primary reasons: property values, property tax reliance, local spending and classification.
“The variation in property taxes between states can be attributed to local government funding needs, the structure of state and local taxation, and property values,” says Colton Pace, Co-Founder and CEO of Ownwell, an Austin, Texas-based company that helps property owners save money. “In some counties, property taxes are the primary source of funding, while other counties receive significant financial aid from states or the federal government. In areas that invest heavily in public education and other public services, property taxes are often higher. Areas with higher property values usually have higher property taxes since the formula to calculate these taxes is based on the value of a property and the tax rate.”
The amount you pay for state or county property taxes is based on the assessed value of your property, which is usually a percentage of the property’s fair market value, says Steven Kibbel, a Certified Financial Planner and Founder and CEO of Kibbel Financial Planning in Franklin, Tennessee.
When it comes to calculating property taxes for a specific area, an assessor evaluates all properties within the municipality or county. Next, the local government establishes the amount of money it needs to raise with the property taxes. The property tax rate is calculated, and each property owner receives a bill. Governments choose to tax property by imposing a rate, or millage (the amount of tax per thousand dollars of value), on the value of the property.
“For example, in Texas, your property tax equals the assessed value times the local tax rate,” Kibbel says. The state’s effective property tax rate is 1.47%. So, if your home was assessed at $400,000, your yearly property tax bill would be $5,880.
But how is the property tax rate itself determined? Let’s run through an example of how this works.
Say a county has $400 million in assessed property value. The county decides it needs $8 million to fund its operations. That’s 2% ($8 million divided by $400 million equals 0.02). The city doesn’t have as many operations as the county, so they decide they need $4 million, or 1% of the assessed value. Finally, the school district is funded with $2 million, or 0.5%.
That makes the total local property tax rate 3.5%. So, if your house has an assessed value of $400,000, your tax bill will be $14,000 annually (0.035 times 400,000 equals $14,000).
Local tax rates and the exemptions you qualify for can play a big role in where you decide to buy a house.
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Common Property Tax Exemptions
Property tax exemptions allow qualifying homeowners to avoid all or a portion of their property taxes each year. Policymakers put these exemptions in place to encourage residency or give certain groups a break. If you’re unsure whether you qualify, the best thing to do is consult a tax advisor. Here are some of the most common exemptions:
- Homestead exemption: A homestead exemption allows people to not count a certain amount of property value toward their tax bill if they use the home as their primary residence.
- Senior exemption: Seniors are often exempted from paying all or a specific portion of property taxes, with the idea being that they are on a fixed income. Who qualifies as a senior may depend on the area of residence.
- Veteran exemption: Qualifying veterans may qualify for a tax exemption or a complete waiver from property taxes in their state of residence to thank them for their service. Veterans – or in some cases, surviving spouses – should speak to their tax authority about qualifying documents.
- Disability exemption: Those with a disability may be exempt from certain property taxes and should consult a tax advisor about the documentation needed to prove the disability.
- Income-based exemption: Some municipalities may also offer exemptions based on income level and household size.
Purpose Of Property Taxes
Property taxes are collected by local and state governments to help pay for a variety of resources and services. Two of the most important categories they help fund are public schools and public services.
Public Schools
A significant portion of local and state property taxes typically goes toward public schools. The Lincoln Institute of Land Policy reported in 2017 that local governments provide 45% of public school funding, with more than 80% of these dollars coming from property taxes. In Illinois, for example, which has the largest number of local governments in the country, roughly two-thirds of school districts get their funding via property taxes.
“A big chunk of property taxes goes toward paying for teacher salaries, maintaining school buildings and buying books, computers and other resources,” Kibbel says.
Public Services
Local governments depend on property tax revenue to support essential public services, including law enforcement, infrastructure, emergency response and other community services tied to property ownership.
“Property taxes are used for the direct benefit of your municipality or town to pay for local employees like county office staff and local police and fire department personnel, as well as for road maintenance, libraries, water and sewer departments, sanitation and other municipal services residents enjoy,” says Edward Nisanov, owner and CEO of Nisanov Tax Group in Brooklyn, New York.
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Highest Property Taxes By State
You can expect your property tax rate to be highest in these five states:
- New Jersey – 2.08%
- Illinois – 1.95%
- Connecticut – 1.78%
- New Hampshire – 1.61%
- Vermont – 1.56%
Lowest Property Taxes By State
If you’re searching for the lowest property tax rates, head to these five states:
- Hawaii – 0.26%
- Alabama – 0.36%
- Nevada – 0.44%
- Arizona – 0.45%
- Colorado – 0.45%
Effective Property Taxes For Each State
Let’s take a closer look at the most recent data available on the property tax rates for each state.
Property Taxes By State
| State | Effective Property Tax Rate | State And Local Property Tax Collections Per Capita |
|---|---|---|
| Alabama | 0.36% | $658 |
| Alaska | 1.07% | $2,326 |
| Arizona | 0.45% | $1,244 |
| Arkansas | 0.53% | $831 |
| California | 0.68% | $2,100 |
| Colorado | 0.45% | $2,066 |
| Connecticut | 1.78% | $3,292 |
| Delaware | 0.48% | $1,097 |
| Florida | 0.71% | $1,608 |
| Georgia | 0.72% | $1,390 |
| Hawaii | 0.26% | $1,608 |
| Idaho | 0.47% | $1,097 |
| Illinois | 1.95% | $2,473 |
| Indiana | 0.71% | $1,208 |
| Iowa | 1.40% | $1,936 |
| Kansas | 1.26% | $1,791 |
| Kentucky | 0.74% | $968 |
| Louisiana | 0.51% | $996 |
| Maine | 0.96% | $2,821 |
| Maryland | 0.95% | $1,816 |
| Massachusetts | 1.04% | $2,801 |
| Michigan | 1.24% | $1,662 |
| Minnesota | 0.98% | $1,868 |
| Mississippi | 0.70% | $1,208 |
| Missouri | 0.82% | $1,333 |
| Montana | 0.69% | $1,827 |
| Nebraska | 1.44% | $2,169 |
| Nevada | 0.44% | $1,209 |
| New Hampshire | 1.61% | $3,294 |
| New Jersey | 2.08% | $3,539 |
| New Mexico | 0.67% | $936 |
| New York | 1.54% | $3,359 |
| North Carolina | 0.63% | $1,116 |
| North Dakota | 0.97% | $1,567 |
| Ohio | 1.30% | $1,552 |
| Oklahoma | 0.76% | $914 |
| Oregon | 0.77% | $1,816 |
| Pennsylvania | 1.26% | $1,681 |
| Rhode Island | 1.23% | $2,465 |
| South Carolina | 0.46% | $1,368 |
| South Dakota | 1.01% | $1,648 |
| Tennessee | 0.48% | $921 |
| Texas | 1.47% | $2,200 |
| Utah | 0.47% | $1,221 |
| Vermont | 1.56% | $2,991 |
| Virginia | 0.72% | $1,911 |
| Washington | 0.76% | $1,895 |
| West Virginia | 0.55% | $1,080 |
| Wisconsin | 1.38% | $1,782 |
| Wyoming | 0.55% | $2,156 |
Can You Lower Property Taxes?
There are only two ways to lower your property tax bill, one of which involves your property value falling. One, you don’t control that. Second, no one wants that.
The only other way to lower your bill is to make sure you’re taking advantage of all of the exemptions that you may qualify for. With that in mind, make sure you go over your individual situation with a tax advisor.
Although it doesn’t actually lower your bill, one thing that can make your payments more palatable if you have a mortgage is to have an escrow account where your property taxes are prorated into 12 equal monthly amounts and added to your mortgage payment. This is often automatically required for your mortgage, depending on your loan type and down payment.
Additionally, homeowners can deduct their property taxes from their federal income taxes. If you itemize deductions, you can include the property taxes paid on your primary residence and any other real estate you own. However, the total deductible for state and local income taxes, including property taxes, is capped at $10,000 annually.
FAQ
Here are answers to some frequently asked questions about state property taxes.
The Bottom Line
Property taxes play a big role in the cost of housing, so it’s important to understand how they work, how they are calculated, and what you can expect to pay before deciding where to live. Of course, property taxes aren’t the only taxes to consider, and a high real estate tax rate may be made up for by lower sales or state and local income taxes.
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Erik J. Martin
Erik J. Martin is a graduate of Loyola University Chicago and a freelance writer whose articles have been featured in AARP: The Magazine, Reader's Digest, The Costco Connection, The Chicago Tribune, Los Angeles Times and other publications. He often writes on topics related to real estate, personal finance, technology, health care, insurance and entertainment. He also publishes several blogs, including Martinspiration.com and Cineversegroup.com, and hosts the Cineversary podcast.
