Understanding property taxes is an important part of the home-buying process. Not only can your property taxes change from year to year, but you’ll also be responsible for paying this tax for as long as you own the property – even after you have paid off your mortgage.
Property taxes may affect your monthly mortgage payment if your lender collects them through an escrow account. They play a critical role in funding essential services in your community. Local and state governments collect and use these taxes to fund community services and resources such as schools, roads, police & fire departments, and sanitation.
Read on to learn more about how real estate taxes are calculated, how and why taxes can vary by state, 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. Illinois and New Jersey consistently rank among the states with the highest effective property tax rates, while Hawaii has the most affordable property tax rate.
- The amount you owe for state or county property taxes is generally determined by the assessed value, which in many states represents a percentage of the property’s estimated 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?
Property taxes are typically paid to local governments such as counties, municipalities and school districts, which use the revenue to fund community services. Also known as ad valorem taxes, property taxes can be a significant expense for homeowners. The local and state government levies these taxes on the assessed value of real property, which includes land and anything permanently attached to it, like buildings and structures.
How much a homeowner pays in property taxes can vary significantly from one state or municipality to another since each local government sets its own tax rate. But tax rates aren’t the only factor that can affect your property tax bill. The assessed value of your property, along with the local tax rate, determines your property tax bill.
The terms “property tax” and “real estate tax” may be used interchangeably, and they refer to taxes on property that can’t be moved. Don’t confuse property taxes with “personal property taxes,” which apply to personal property that can be moved, like a vehicle, RV, boat or plane.
In the United States, state and local governments use property taxes as a major revenue source. These funds support essential services like schools, roads and police.Since property taxes pay for local services, the Tax Foundation describes property taxes as operating on what’s known as the “benefit principle.” This means homeowners generally benefit from the state and local services their property taxes support. For example, property taxes pay for local K-12 education, an essential service that benefits home buyers and residents who have young families.
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Why Do Property Taxes Vary By State?
Property tax rates vary widely from state to state due to several factors. “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,” Pace says to explain why rates vary by locality. “In areas that invest heavily in public education and other public services, property taxes are often higher.”
Property values also impact how much homeowners pay in real estate taxes. “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.
Your property taxes equal the assessed value of your home multiplied by your local effective tax rate. That means the amount you’ll pay can vary based on where you live and the value of your home.
For example, in Texas, the state’s effective property tax rate is 1.25%. If your home was assessed at $400,000, your yearly property tax bill would be $5,000. In areas where home values and tax rates are higher, homeowners will pay more in property taxes. In more affordable areas, especially those with lower tax rates, homeowners pay less.
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How Your Property Value Is Assessed
When it comes to calculating property taxes for a specific area, an assessor evaluates all properties within the municipality or county.
In many areas, local tax authorities or assessment offices evaluate properties within a county or municipality. Property assessors determine property values, while local governments set the tax rates needed to fund budgets.
Every county and area has its own system, but some of the most commonly used criteria to determine a property’s assessed value include:
- The value of comparable properties in your area
- The location and condition of the property
- The value of home improvements you’ve made
- Overall market conditions
- The amount of depreciation (loss of value over time)
- Whether the property is a rental or owner occupied
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How Does The County Set The Property Tax Rate?
After the assessments have been made, the local government establishes the amount of money it needs to raise from property taxes. The property tax rate is calculated, and each property owner receives a bill.
But how is the property tax rate actually determined? Let’s run through an example of how this works.
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. This number determines how much property tax you owe per $1,000 of assessed home value. Each state, county, city and town or community sets a mill rate for their area. The mill rates are added together to determine the property tax rate for your tax district or tax area (aka the mill levy).
Say a county has $800 million in assessed property value. The county decides it needs $4 million to fund its operations. That’s 0.5% ($4 million / $800 million = 0.005), meaning your county has a mill rate of 5 (0.5%).
The city doesn’t have as many operations as the county, so it decides it needs $3 million, or 0.375% of the assessed value. Therefore, your city has a mill rate of 3.75 (0.375%). The school district is funded with $2 million, or 0.25%, giving your local tax district a mill rate of 2.5 (0.25%).
That would bring your total mill levy (or tax rate) to 11.25 (1.125%), which means for every $1,000 of assessed home value, you would owe $11.25 in property taxes. If your house has an assessed value of $400,000, your tax bill will be $4,500 annually (0.01125 x $400,000 = $4,500).
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Highest Property Taxes By State
You can expect your property tax rate to be highest in these five states:
- Illinois – 1.793%
- New Jersey – 1.675%
- Vermont – 1.399%
- Nebraska – 1.379%
- Connecticut – 1.355%
Lowest Property Taxes By State
If you’re searching for the lowest property tax rates, head to these five states:
- Hawaii – 0.308%
- Alabama – 0.372%
- Arizona – 0.426%
- Idaho – 0.433%
- South Carolina – 0.438%
Rates are based on the latest available data from 2024 – the most recent data.
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 |
|---|---|
| Alabama | 0.37% |
| Alaska | 0.90% |
| Arizona | 0.43% |
| Arkansas | 0.54% |
| California | 0.69% |
| Colorado | 0.52% |
| Connecticut | 1.36% |
| Delaware | 0.51% |
| Florida | 0.76% |
| Georgia | 0.77% |
| Hawaii | 0.31% |
| Idaho | 0.43% |
| Illinois | 1.79% |
| Indiana | 0.76% |
| Iowa | 1.25% |
| Kansas | 1.20% |
| Kentucky | 0.72% |
| Louisiana | 0.56% |
| Maine | 0.90% |
| Maryland | 0.90% |
| Massachusetts | 0.95% |
| Michigan | 1.13% |
| Minnesota | 0.99% |
| Mississippi | 0.54% |
| Missouri | 0.85% |
| Montana | 0.59% |
| Nebraska | 1.38% |
| Nevada | 0.50% |
| New Hampshire | 1.35% |
| New Jersey | 1.65% |
| New Mexico | 0.61% |
| New York | 1.23% |
| North Carolina | 0.62% |
| North Dakota | 0.94% |
| Ohio | 1.28% |
| Oklahoma | 0.78% |
| Oregon | 0.79% |
| Pennsylvania | 1.14% |
| Rhode Island | 1.00% |
| South Carolina | 0.44% |
| South Dakota | 1.00% |
| Tennessee | 0.46% |
| Texas | 1.25% |
| Utah | 0.45% |
| Vermont | 1.40% |
| Virginia | 0.75% |
| Washington | 0.74% |
| West Virginia | 0.48% |
| Wisconsin | 1.19% |
| Wyoming | 0.58% |
Can You Lower Property Taxes?
Homeowners may lower their property taxes in several ways, including qualifying for exemptions, appealing an assessment or benefiting from assessment caps in some states.
It is pertinent to take advantage of all the exemptions you qualify for to lower your property taxes. That’s why it’s a good idea to sit down with a tax advisor to go over your individual situation to make sure you don’t miss any exemptions.
Another way to make your payments more manageable, though it doesn’t actually lower your tax bill, is to make 12 prorated equal monthly payments toward your property taxes into an escrow account when you pay your mortgage each month. Many mortgage lenders require escrow accounts, particularly when borrowers make smaller down payments.
Additionally, the IRS allows homeowners to 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. With passage of the OBBB (One Big Beautiful Bill Act) legislation in July 2025, married homeowners filing jointly who itemize their deductions can deduct up to $40,000 in state and local taxes for the 2025 fiscal year.
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 because they are on a fixed income. Who qualifies as a senior may depend on the area of residence.
- Veteran exemption: Qualifying veterans may be eligible for a tax exemption or a complete waiver of 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.
FAQ
Here are answers to some frequently asked questions about state property taxes.
The Bottom Line: Consult your local tax assessor’s office or a tax professional for guidance about property taxes in your area.
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.
Deborah Kearns
Deborah Kearns is an award-winning independent journalist with more than 15 years of experience covering real estate, mortgages and personal finance. Her work has appeared in the Wall Street Journal, Kiplinger, U.S. News & World Report, Quartz, CNN, Forbes, Fortune, Newsweek, The Associated Press and dozens of other outlets. She previously led content and communications at a Top 15 national mortgage company and held writing and editing roles at Bankrate, NerdWallet, LendingTree and RE/MAX. She holds a bachelor's degree in journalism from the University of Florida and a master's degree in public relations from Ball State University.
