Property Tax By State: Who Has The Highest Or Lowest Property Taxes?
There are many reasons one might scrutinize the location of their new home including employment opportunities, distance to desired destinations and the climate. One factor that shouldn’t be underrated is property tax policy. How does the area you’re considering stack up? Let’s take a closer look at property tax by state.
How Are Property Taxes By State Calculated?
When it comes to calculating property taxes for a certain area, this process starts with an assessor evaluating all the properties within the municipality. Next, the local government establishes the amount of money that is to be raised by the property taxes. Then, the property tax rate is calculated and finally, 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 fair market value of the property.
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 ÷ $400 million = 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%. If your house had an assessed value of $300,000, your tax bill would be $14,000 annually (0.035 × 400,000 = $14,000).
The assessed rate for your taxes may only be a percentage of the fair market value of your home depending on state law and any exemptions you may qualify for, so your assessed rate often doesn’t match your property value. Local tax rates and the exemptions you qualify for can play a big role in where you decide to buy a house.
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, give certain groups a break or as a form of thank you. The best thing to do if you’re unsure if you qualify is to 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 exemptions: Seniors are often exempted from paying all or a certain portion of property taxes with the idea that they are on a fixed income. Who qualifies as a senior may depend on your area of residence.
- Veteran exemption: Qualifying veterans may qualify for a tax exemption in their local municipality or state of residence as a form of thank you for their service. Speak to your tax authority about qualifying documents.
- Disability exemption: If you have a disability, you may be exempt from certain property taxes in your area. Consult a tax advisor about the documentation needed to prove the disability.
- Income-based exemptions: If your income is low enough, you may qualify for this exemption as well.
Can You Lower Property Taxes?
There are really only two ways to lower your property tax bill and one of them 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, really make sure you go over your individual situation with a tax advisor.
Although it doesn’t physically 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 separated into 12 equal monthly amounts and added to your mortgage payment. In many cases, this is automatically required for your mortgage depending on your loan type and down payment.
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Highest Property Tax States
Property tax rates vary for everyone because exemptions can lower the rate. The nonpartisan Tax Foundation does an analysis every year of the effective property tax rate in all 50 states. Effective property tax rate is defined as the state’s total property taxes paid divided by total home value for owner-occupied homes.
Here are the top five rates along with the expected effective tax based on median home value:
- New Jersey – 2.23% ($9,498.79 median annual effective tax bill)
- Illinois – 2.08% ($5,720.81 median annual effective tax bill)
- New Hampshire – 1.93% ($7,698.34 median annual effective tax bill)
- Vermont – 1.83% ($6,207.08 median annual effective tax bill)
- Connecticut – 1.79% ($6,082.22 median annual effective tax bill)
States With The Lowest Property Tax
It’s worth noting that states that are higher or lower than others in property taxes may treat other taxes differently. For example, income and sales tax may be higher or lower to compensate one way or the other for the property tax rate. Here are the five states with the lowest effective property tax rate:
- Hawaii – 0.32% ($2,306.30 median annual effective tax bill)
- Alabama – 0.4% ($1,038.14 median annual effective tax bill)
- Colorado – 0.55% ($3,080.83 median annual effective tax bill)
- (Tied) Wyoming – 0.56% ($1,524.60 median annual effective tax bill) and Louisiana – 0.56% ($1,369.03 median annual effective tax bill)
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Effective Property Taxes For Each State
State | Effective property tax rate | Median home value | Annual effective tax on median value home |
|---|---|---|---|
Alabama | 0.40% | $259,538.73 | $1,038.14 |
Alaska | 1.04% | $349,474.30 | $3,636.72 |
Arizona | 0.63% | $425,544.41 | $2,662.11 |
Arkansas | 0.64% | $319,951.59 | $2,054.45 |
California | 0.75% | $750,079.85 | $5,602.79 |
Colorado | 0.55% | $563,896.47 | $3,080.83 |
Connecticut | 1.79% | $339,838.28 | $6,082.22 |
Delaware | 0.61% | $349,990.75 | $2,146.41 |
District of Columbia | 0.62% | $649,721.52 | $4,035.59 |
Florida | 0.91% | $361,918.02 | $3,302.82 |
Georgia | 0.92% | $350,471.23 | $3,228.09 |
Hawaii | 0.32% | $731,779.92 | $2,306.30 |
Idaho | 0.67% | $494,886.28 | $3,292.08 |
Illinois | 2.08% | $274,731.33 | $5,720.81 |
Indiana | 0.84% | $250,000.12 | $2,107.97 |
Iowa | 1.52% | $248,259.88 | $3,783.72 |
Kansas | 1.34% | $339,307.79 | $4,552.00 |
Kentucky | 0.83% | $245,538.86 | $2,033.38 |
Louisiana | 0.56% | $245,225.74 | $1,369.03 |
Maine | 1.24% | $299,988.28 | $3,708.68 |
Maryland | 1.05% | $385,548.86 | $4,042.66 |
Massachusetts | 1.14% | $554,204.65 | $6,312.64 |
Michigan | 1.38% | $227,563.06 | $3,136.39 |
Minnesota | 1.11% | $324,993.23 | $3,598.65 |
Mississippi | 0.67% | $251,271.58 | $1,681.28 |
Missouri | 1.01% | $239,939.24 | $2,418.15 |
Montana | 0.74% | $453,898.47 | $3,352.93 |
Nebraska | 1.63% | $295,131.24 | $4,818.74 |
Nevada | 0.59% | $399,719.53 | $2,355.66 |
New Hampshire | 1.93% | $398,886.09 | $7,698.34 |
New Jersey | 2.23% | $425,019.13 | $9,498.79 |
New Mexico | 0.67% | $329,815.54 | $2,215.33 |
New York | 1.40% | $449,924.05 | $6,306.13 |
North Carolina | 0.82% | $324,992.86 | $2,650.30 |
North Dakota | 0.98% | $290,205.71 | $2,840.36 |
Ohio | 1.59% | $219,903.20 | $3,499.09 |
Oklahoma | 0.89% | $233,547.78 | $2,083.89 |
Oregon | 0.93% | $474,997.25 | $4,427.21 |
Pennsylvania | 1.49% | $275,004.41 | $4,097.96 |
Rhode Island | 1.40% | $406,540.00 | $5,684.58 |
South Carolina | 0.57% | $329,820.86 | $1,869.42 |
South Dakota | 1.17% | $338,388.89 | $3,953.73 |
Tennessee | 0.67% | $349,375.90 | $2,332.37 |
Texas | 1.68% | $350,000.62 | $5,870.39 |
Utah | 0.57% | $431,500.00 | $2,460.97 |
Vermont | 1.83% | $339,969.84 | $6,207.08 |
Virginia | 0.87% | $385,038.11 | $3,367.61 |
Washington | 0.87% | $549,990.32 | $4,802.79 |
West Virginia | 0.57% | $214,446.21 | $1,217.47 |
Wisconsin | 1.61% | $264,923.47 | $4,265.39 |
Wyoming | 0.56% | $274,432.34 | $1,524.60 |
Source: Tax Foundation analysis and Rocket Homes median list price data for Jan. – Aug. 2023
The Bottom Line
Property taxes play a big role in the cost of housing, so it’s important to take them into consideration when deciding where to live. Of course, property taxes aren’t the only ones to consider, and a high real estate tax rate may be made up for by lower (or no) sales or state/local income taxes.
If you’ve done your research and you’re ready to move forward, you can get started by filling out an application today.
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