Differences in property taxes across states vary significantly. In this article, we will delve into the reasons behind this variation, the methods used to calculate property taxes, and potential strategies to lower your own. By reading through to the end, you should have a good understanding of property tax mechanics.
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Most of us are all too familiar with property taxes. They’re the money you pay annually or monthly to your county or city government for the privilege of living in your home.
Tax Foundation, a nonpartisan nonprofit, reckons that property taxes accounted for 32.2% of total state and local tax collections nationwide in the 2020 fiscal year.
It continued: “Local governments rely heavily on property taxes to fund schools, roads, police departments, fire and emergency medical services, and other services associated with residency and property ownership.”
The amount you pay is determined by three factors:
We’ll dig deeper into how your property taxes are determined a little later in this article.
Here’s a list of property taxes by state, plus the District of Columbia, ranked from the lowest to the highest.
Property tax rate
Looking at property taxes by state raises questions, perhaps most obviously: Why such wide variations?
And there are various answers. Some state governments might spend their revenues more or less efficiently than average. Others could invest more or less in their public services and infrastructure. Yet others may choose to raise their real estate taxes in different ways: perhaps through a higher or lower state sales tax or income tax rate than others. And some receive bigger grants than others from the federal government.
You might be more inclined to move to a state with low property taxes. But you should investigate those other factors, too, before you decide.
So, property taxes are largely dependent on how your state and local governments choose to spend their taxpayers’ money and raise revenues. They may decide how much they need to raise to meet their budgets, look at the assessed median home values in their area, and then calculate the effective property tax rate they need to make the math work.
FindLaw.com explains: “To calculate the market value of a piece of property, an assessor will determine if there have been changes in the real estate market where the property is situated. The assessor will examine what different types of property are selling for, local construction costs, normal operating expenses like utilities, nearby rental rates, and inflation. Changes in these factors may change the assessed value of the property.”
Most states offer property tax exemptions for certain groups of residents. These tend to focus on veterans, senior citizens and disabled people.
However, the rules vary for exemptions almost as much as rates of property taxes by state do. Luckily, the National Association of Counties publishes A Look at Exemptions, Tax Limits and Assessment Cycles, which sets out each state’s policies.
Property taxes are one of the hardest taxes to dodge. Your home is there for everyone to see. You really can’t hide it under your mattress.
Your state and local governments need property taxes to pay for things we all value. But none of us needs to pay more than is due under the law.
Nobody likes paying taxes. But property taxes pay for stuff we need. And you’ll struggle to avoid or evade them. So, you might as well grit your teeth and pay up.
How much you pay will largely depend on how your state and local governments choose to raise revenues and how much they decide to spend. So, property taxes by state vary widely. But you’ll have to campaign for different political candidates if you want to change those things.
Still, you might get smaller bills if you’re entitled to an exemption, appeal against your assessment, or pay annually instead of monthly. You’ll have to check your local rules to see how to go about these things.
While many people pay only a small fraction of their mortgage costs on property taxes, you should be aware of your likely bills before you buy a home. In some cases, they could be decisive to your ability to afford your homeownership costs. When you use our mortgage calculators, we include property tax and homeowners insurance estimates as well as mortgage payments in the figures you’ll see.
New Jersey has the highest rate for property taxes at 2.49%. But don’t forget the value of the home plays at least as important a part in the bills you’ll get. And a wildly expensive mansion in Manhattan or San Francisco might have a higher liability than a comparably sized home in New Jersey.
Hawaii has the lowest property tax rate at 0.28%. But, again, home prices tend to be high there.
Your local government will employ a professional assessor who will determine your home’s market value. Your state will have laws that define how often that has to be updated and how much of the value is used when calculating your liability.
Maybe. You certainly can if you’re eligible for an exemption under your state’s laws. And you might be able to if you appeal the value your assessor put on your home. Sometimes, you may get a discount for paying annually instead of monthly.
Authored By: Peter Warden The Mortgage Reports EditorPeter Warden has been writing for a decade about mortgages, personal finance, credit cards, and insurance. His work has appeared across a wide range of media. He lives in a small town with his partner of 25 years.
Reviewed By: Aleksandra Kadzielawski The Mortgage Reports EditorAleksandra is the Senior Editor at The Mortgage Reports, where she brings 10 years of experience in mortgage and real estate to help consumers discover the right path to homeownership. Aleksandra received a bachelor’s degree from DePaul University. She is also a licensed real estate agent and a member of the National Association of Realtors (NAR).