The Best and Worst States for Property Taxes
Median state tax rates can vary considerably
Looking for a state that doesn't have a property tax is like grabbing binoculars to watch the sky for a unicorn. We've all heard Benjamin Franklin's old quote that nothing is certain in life but death and taxes, and that's especially true for property taxes.
You'll pay them if you own real estate no matter where you live in the U.S., but tax rates are much lower in some states than in others.
The Best States for Property Taxes
A lot of complicated math goes into calculating property tax rates, but the equation ends with a percentage of home value. These percentages are the result of calculations. States compute tax rates according to their own unique formulas, and these formulas can be held pretty close to the vest.
Percentages are a good way to rank the states because they provide a standardized number for comparison. Let’s say that someone in State A pays $10,000 a year in property taxes on a home worth $1 million. Someone in State B pays $10,000 a year on a condo worth $150,000.
The person in State A is paying only 1 percent of his home's value while the person in State B is paying almost 7 percent. The person in State A is getting the best deal, even though they're both paying the same dollar amount.
As reported by Tax-Rates.org, these are the top 10 best states for property taxes as of 2018 in order from lowest to the highest.
- Louisiana: 0.18 percent
- Hawaii: 0.26 percent
- Alabama: 0.33 percent
- Delaware: 0.43 percent
- District of Columbia: 0.46 percent
- West Virginia: 0.49 percent
- South Carolina: 0.5 percent
- Arkansas: 0.52 percent
- Wyoming: 0.58 percent
- Colorado: 0.6 percent
These are median percentages using aggregate data. Half of all rates are higher and half are lower in each state. So there you have it. Louisiana is the next best thing to a state with no property tax.
The Worst States for Property Taxes
Tax-Rates.org found that homeowners in the following states paid the most in property taxes. They're ranked from the most to least expensive in this category.
- New Jersey: 1.89 percent
- New Hampshire: 1.86 percent
- Texas: 1.81 percent
- Nebraska: 1.76 percent
- Wisconsin: 1.76 percent
- Illinois: 1.73 percent
- Connecticut: 1.63 percent
- Michigan: 1.62 percent
- Vermont: 1.59 percent
- Rhode Island: 1.35 percent
The difference between the state with the lowest rates—Louisiana—and New Jersey's highest rate is a whopping 1.71 percent. It may not sound like much but when it's correlated to a home's value it can come out to a pretty significant property tax bill, particularly on a luxury home.
It's All Relative
Some states that impose formidable property tax rates, such as New Hampshire and Texas, give residents a few breaks in other major tax categories. For example, Texas has no state income tax. These states therefore rely heavily on property taxes to make ends meet.
On the other side of the equation are states that impose high taxes across the board, such as New Jersey and Illinois.
Property taxes are not set solely at the state level. Cities, counties and local school boards get involved, so taxes in one area of a state might be higher than those in other areas.
Several states offer property tax exemptions for senior citizens, veterans, and the disabled, and some offer homestead exemptions for at least a portion of your home's value if you actually live in the residence—it's not a rental or investment property.
You might also qualify for a state tax credit based on the amount of your property taxes. You can often ask for relief if you're going through tough financial times. Some taxing authorities will defer your payments for a period of time.
The worst thing you can do is ignore that tax bill if it's not included in your monthly mortgage payment, which is often the case.
Who Sets Home Value?
You can't simply tell the state, county, or municipality how much you think your home is worth and let them take it from there. Your home's value for property tax purposes is based on appraised fair market value. And, no, the appraiser is not an independent third party.
Property tax assessors typically work for the government. Most states have an appeals process in place, however, so you have some recourse if you receive an astronomical assessment.
If you're considering adding a second floor to your home or putting an in-ground swimming pool in your back yard, you can expect your tax bill to go up. Improvements such as these will almost certainly increase your home's fair market value. You'll find yourself paying more in property taxes even if your state's tax rate remains the same.
The values of other homes in your area can be taken into account as well.