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?
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).