There are several states without an income tax. But property taxes? Those are a part of life in every state across the country. Essentially, your local government determines a property tax rate based on each homeowner's property value to pay for a variety of community tools and resources.
While property taxes may seem like a nuisance (as many taxes do), this tax payment is pretty integral to townships and municipalities to fund community projects. In this comprehensive property tax guide, we'll cover the following:
- Where do property taxes go?
- How to calculate property tax
- Highest property taxes by state
- Lowest property taxes by state
- Average property taxes by state
- How to lower your property taxes
- Know your tax rates
Where Do Property Taxes Go?
Property taxes help provide revenue for governments and municipalities -- both at the state and local level. They go toward infrastructure projects, schools, city and state employee salaries, and utilities, and they even pay for local fire, police, and EMT services in many places.
But as these municipalities vary greatly (in size and services provided), so do the property tax rates residents are charged. In some parts of the country, you'll pay just a few hundred dollars per year, while in others, you'll see tax bills well in the thousands (or even tens of thousands, depending on your home's value).
Are you curious about what you can expect to pay for property taxes on your home or investment property? Here's a detailed breakdown of property taxes by state, including property taxes in the highest and lowest taxed states.
How to calculate property tax
Property taxes aren't cut and dry. The basic gist is this: Every year, you're charged a certain percentage of your assessed home value. The exact rate depends on your jurisdiction -- how much it needs for local schools, government operations, utilities, and more. You're usually charged a rate for each one of these individual services, and they're all added up, giving you what's called your effective property tax rate, or mill rate.
These rates diverge significantly from city to city and state to state. One homeowner may pay $5,000 in property taxes on a $250,000 house while another pays the same amount on a $750,000 house. It all depends on where you live and the local services your municipality provides.
Highest Property Taxes by State
In looking at state tax rates, New Jersey residents deal with the highest charges. According to the U.S. Census Bureau, the median property tax bill in the state is upwards of $7,400, and the average effective tax rate across the state is 2.13%.
Other states that have high effective property tax rates include:
- Illinois (1.95%, median tax bill of $3,995).
- New Hampshire (1.94%, $5,100).
- Vermont (1.79%, $3,795).
- Connecticut (1.68%, $5,327).
- Wisconsin (1.63%, $3,248).
- Texas (1.62%, $2,578).
- Nebraska (1.61%, $2,467).
- Pennsylvania (1.46%, $2,553).
- Iowa (1.46%, $1,916).
Many of these states make up for their high tax rates by scaling back in other taxable categories. In Texas, for example, there's no statewide income tax, and New Hampshire has no sales tax.
New York and Massachusetts have higher tax bills than residents in other states, but that's likely due to the higher median home values in those areas.
Lowest Property Taxes by State
Homeowners in Hawaii, Alabama, and Louisiana enjoy the lowest effective property tax rates across the United States. In Hawaii, residents pay just 0.30% of their home's fair market value. The median bill comes out to just over $1,400, according to the Census Bureau, making for a pretty low property tax.
In Alabama, the rate's not much higher at 0.37%. And due to the state's low home prices, residents see a median payment of just $543 annually.
Here's a look at the top 10 lowest property tax rates by state:
- Hawaii (0.30%, median tax bill of $1,406).
- Alabama (0.37%, $543).
- Louisiana (0.51%, $707).
- South Carolina (0.52%, $798).
- West Virginia (0.54%, $607).
- Wyoming (0.58% $1,196).
- Nevada (0.60%, $1,481).
- Mississippi (0.62%, $813).
- Idaho (0.72%, $1,246).
- Montana (0.73%, $1,652).
In just looking at median property tax bills, Arkansas also ranks among the top of the lowest property tax states. Residents in the state pay just under $700 on their annual property taxes.
Average Property Taxes by State
Curious how your state measures up to the rest? Trying to decide where to invest or buy a home next? Check out the most current effective property tax rates and median property tax bills per state, according to the U.S. Census Bureau and the nonprofit policy research firm Tax Foundation.
How To Lower Your Property Taxes
If you live or own property in one of the higher-tax states, that doesn't mean you have to resign yourself to sky-high tax bills every year. In fact, there are actually quite a few ways you might be able to lower your tax liability.
- Apply for a property tax exemption, if you qualify. Many states offer full or partial exemptions and deductions for certain groups of citizens, including veterans, seniors, disabled residents, and more.
- File for a homestead exemption. Some states also offer what's called a homestead exemption, which lets you lower your tax burden as long as the home is your primary residence.
- Protest your property tax bill. If you think your assessed home value is too high, you might be able to appeal. An appraisal may be required to show your home's fair market value is lower than your taxing authority believes it is, but if you win, it could lower your tax bill significantly.
Don't forget: If you itemize your returns, you can write off your property taxes as part of your SALT deductions. You can only deduct up to $10,000 though (including your mortgage interest and other qualifying write-offs), so keep this in mind.
Know your tax rates
Understanding the property tax rates of a community is critical if you're considering buying property there. If you opt to escrow, your taxes will make up a considerable portion of your monthly mortgage payment. If you don't, you'll have a hefty bill come January -- which will likely need some serious budgeting and planning to manage. Make sure you do your research so you're well prepared either way.