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Property Taxes Uncovered: A Look At The U.S. Tax Landscape

So you heard that the real estate industry is a gold mine, and you’ve been considering owning more than just a home. It’s time to look into rental properties and create multiple income streams to create financial security for you and your family. However, owning a property comes with several considerations, and top on the list is your property taxes. 

As much as owning a home in a viable community helps you harness the best financial benefits, it also requires financial support. So, how do you protect yourself from huge property taxes? Read along and find out.

What Are Property Taxes?

Property taxes, also known as real estate taxes, are paid by a real estate owner or homeowner to county or local tax authorities. The amount of property taxes you’ll pay is based on the assessed value of your property and your state’s property tax rate. Most homeowners have to pay these taxes on a monthly basis along with their mortgage. 

How Are Property Taxes Calculated?

Both the overall value of your home and the property tax rate of the state or county you live in are significant determinants of how much property taxes you’ll pay. The overall value of your home includes the land itself and the structure on it. This means vacant land could have a lower tax rate.

Property assessment is based on a unit called a mill, which is equal to one-thousandth of a dollar. Some assessment values fluctuate according to the state and market, but property assessors calculate your annual property tax bill by multiplying three values:

  • The state tax rate
  • The property value
  • The assessment ratio (the portion of the property value liable to tax) 

Property taxes can vary across different states and jurisdictions, and there are four major reasons for these differences: 

  • Property tax reliance.
  • Property value
  • Classification
  • Local spending. 

In general, cities tend to have a more expensive property tax rate if there’s a high dependence on property taxes, low property value, or a higher local government budget.

What Are Property Taxes Used For?

From the schools to the beautiful infrastructure and public services, everything requires a little financial commitment, and that’s where your property taxes come in. These tax levies are generally used to fund public services such as firefighters, police, and education. 

Are There States With No Property Taxes?

In all of the 50 states in the U.S., it is required that all property owners pay property taxes, which varies by state. While most homeowners have to pay taxes, some properties are exempt. For example, there may be tax exemptions, restrictions on relief programs, or property tax growth for some residents, such as people with disabilities, veterans, elderly homeowners, and homeowners who make certain renovations or install renewable energy systems. 

States With The Lowest Property Tax Rate

Property taxes can make or mar your budget as a homebuyer. If you live or have a property in one of the higher property tax states in the U.S., you could end up reaching deeper into your pocket to pay property taxes. 

More so, there’s no hiding place because there isn’t a single U.S. state that doesn’t levy a minimum property start. If you’re into real estate or living on lots of land, consider investing in properties located in states with the lowest property tax rates to avoid the tax pinch. Here are the best 5 states with low property taxes

  • Hawaii

Apart from the stunning beauty and climate, Hawaii has the lowest tax rate in the U.S. at only 0.29%, with a median value of $772,500. But before you get tempted to soak your feet in the calming sands of the Hawaiin beach, you should know that the median price of a home in Hawaii is a whopping $66,100- the highest in the U.S. This means an annual property tax bill of $1,893. While this is less than the U.S. average, it’s still not a cheap change. Top that with the fact that Hawaii also has the highest cost of living in the U.S. and you might not be tempted to move to Hawaii anytime soon.

  • Alabama

Alabama does not only offer a beautiful landscape, but it’s also a great start for homebuyers because of its low housing costs. With only a 0.41% effective real estate tax rate and a median home value of $157,100, Alabama is known for its overall lowest housing costs in the U.S. If you live in Alabama, this reduces your average annual property tax payment to just $646, more than 50% lower than that of Hawaii. Apart from the low housing cost, Alabama is also one of the most affordable places to live in the U.S. with regard to the overall cost of living.

  • Colorado

If you love mountains, then you’ll find Colorado an appealing place to buy a new property. On top of its natural vistas, Colorado also has one of the lowest property taxes at only %0.51%. The median value of a home in Colorado stands at $397,500, pegging the annual taxes on an average house around $2,017. 

  • Nevada

Compared to 2022, when Nevada was placed in the ninth place with an effective tax rate of 0.6%, this year, the Nevada property tax rate has dropped significantly to 0.55%. Putting the Silver State in fourth place in the top 5 states with low property taxes in the U.S. Generally, the property values in Nevada are not too far from the national average at $315,900, bringing the annual property tax payments to $1,736.

  • Louisiana

Known for its vibrant and diverse cultural scene, Louisiana is another state with both low effective property tax rate and typical low home prices, with an average home price of $174,000. While the cost of living is not the lowest, it’s still better than other states. However, Louisiana’s overall affordability rate is contrasted by its high poverty rate, which stands at 19%.

States With The Highest Property Tax Rates

New Jersey has the highest property tax rate. Homeowners in New Jersey pay over $8,000 annually in property taxes, depending on the value of their property. While this may be on the high side, other states with the highest tax rates aren’t far behind, with an average tax rate near or above 2%.

  • New Jersey

Average effective property tax rate: 2.47%

Median home value: $355,700

Annual taxes on a median-priced property: $8,797

  • Illinois

Average effective property tax rate:2.23%

Median home value: $212,600

Annual taxes on a median-priced property: $4,744

  • Connecticut

Average effective property tax rate: 2.15%

Median home value: $286,700

Annual taxes on a median-priced property: $4,744

  • New Hamshire:

Average effective property tax rate: 2.09%

Median home value: $288,700

Annual taxes on a median-priced property: $4,570

  • Vermont

Average effective property tax rate: 1.09%

Median home value: $240,600

Annual taxes on a median-priced property: $4,570


Take Home

While property taxes can be high, there are other ways to mitigate the effect. Depending on where you live, you could be eligible for property tax exemptions offered by your state, county, or local area. The best way to ward off the burden long-term is to work with a tax strategist to help you maximize your eligible deduction. Ready to discover how far you can go with legal tax strategies? Book a consultation call with our expert tax team today.

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