Five Ways To Minimize Your Property Tax Burden
While its nearly impossible to legally avoid paying property taxes, there are a few things that real estate investors can do to help keep the assessed value of their property low. This in turn will lead to a lower property tax bill:
Do States With No Property Tax Exist
Unfortunately, thereâs no such thing as states with no property tax. Every state charges real estate property taxes because they are used to fund essential government services like education, infrastructure, law enforcement, public transportation, parks and recreation, as well as water and sewer improvements. However, the phrase is still used by real estate investors to refer to the US states with the lowest property tax rates. In these states, property tax is so small that itâs basically negligible and doesnât affect positive cash flow and return on investment. Keep in mind, however, that states with the lowest property tax rates might have higher costs elsewhere in order to make up for the costs.
States With No Income Tax
The table below illustrates the differences among states with no income tax. The first two columns show the state’s overall tax burden as a percentage of personal income followed by the rank that the state holds among all 50 states.
The third column shows the state’s affordability ranking, which combines both the cost of housing and cost of living, and the last column includes the state’s rank on the U.S. News& World Report “Best States to Live In” list.
These figures are as of the most recent reports: 2020 for overall tax burden, 2018 for affordability, and 2019 for “Best States to Live In.”
| Comparison of States With No Income Tax | |
|---|---|
| No-Tax State | |
| 42 | 37 |
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States And Federal Government Have Exacerbated Localities Problems
State property tax limits might have caused less harm to residents if either states or the federal government had made up for the lost local revenue. But that generally did not happen, sometimes even in states whose limits required the state to make up the lost local revenue. To the contrary, federal aid to localities fell from 8.4 percent of total local revenue in 1977 to 3.8 percent in 2015, while state aid to localities dropped from 30.7 percent of total local revenue to 28.4 percent.
In some states, income tax cuts have left inadequate revenue available to sustain previous levels of support for localities. For example, income tax cuts in Massachusetts led to a 44 percent reduction in unrestricted state aid to localities, after adjusting for inflation. After Maine enacted major income tax cuts, the state scaled back aid for localities, ultimately cutting the amount of aid from 5 percent of broad-based taxes to 2 percent. And income tax cuts in Kansas made it very difficult to restore recession-era cuts in aid to localities, which remains down 14 percent since 2009 after adjusting for inflation.
The failure of state aid to make up for the revenue lost to local property tax limits is evident in the focus states of this report.
Analysis Shows Population Growth In Lower Tax States
For many, the pandemic has altered their perceptions about where they want to live and where they can live. Millions of city-weary residents aching for more space have moved since the start of the pandemic.
Analysis of state tax burden rates and the change in population from 2019 to 2020 as estimated by the U.S. Census Bureau shows a negative correlation. The lower the state and local tax burden, the higher the population growth in 2020.
Four of the five states with an A grade in tax friendliness had population growth at or above the national average. The fifth state in the group with negative population growth was Alaska.
Of the states with an E grade, all three had population declines in 2020. Of the 9 states with a D grade, only one, New Hampshire, had population growth higher than the national average.
The included expert insights section on this page has advice on how to manage moving and taxes.
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Effective Property Tax Rates By State
In the US, the median owner-occupied home value is $222,041, with an effective tax rate of 1.09%. Hence, the median property taxes paid for such homes are about $2,412.In the table below, we will go over each state and see how it compares to the American median figures. We will also analyze the states with the highest property taxes alongside the jurisdictions with the lowest property taxes in the US. Please note that in the next table, the focus is on personal property taxes by state.
States With Highest Property Tax
New Jersey, Illinois and New Hampshire top the list of states with the highest effective property tax rates. This means that, with the average home price in New Jersey at $500,628 in the first quarter of 2021, 3 the homeowner would pay just over $10,660 in yearly property taxes.
Based on effective tax rates and the U.S. median priced home of $350,330, heres a list of the top 10 states for property taxes. Keep in mind, these are high-level assumptions using effective property tax rates and a national average home price. To find a more complete estimate, check your local/county website and use the actual value of a home in your area.
- New Jersey
- Illinois
- New Hampshire
- Vermont
- Connecticut
- Texas
- Nebraska
- Wisconsin
- Ohio
- Pennsylvania
Some states make up for their high property tax rate by scaling back in other tax categories. For example, New Hampshire has no sales tax but has the third-highest effective property tax rate in the country.
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Top 10 States With The Lowest Property Tax
The 10 best states for people looking for the lowest property tax rates are as follows, according to Business Insider:
- 0.18% of assessed home value
- $243 property tax per year based on state median home value
- $54,216 median household income
- 0.26% of assessed home value
- $1,324 property tax per year based on state median home value
- $81,711 median household income
- 0.33% of assessed home value
- $398 property tax per year based on state median home value
- $51,014 median household income
- 0.43% of assessed home value
- $1,078 property tax per year based on state median home value
- $67,249 median household income
- 0.46% of assessed home value
- $2,057 property tax per year based on state median home value
- $98,620 median household income
- 0.49% of assessed home value
- $464 property tax per year based on state median home value
- $44,940 median household income
- 0.5% of assessed home value
- $689 property tax per year based on state median home value
- $52,001 median household income
- 0.52% of assessed home value
- $532 property tax per year based on state median home value
- $48,177 median household income
- 0.52% of assessed home value
- $508 property tax per year based on state median home value
- $45,925 median household income
- 0.55% of assessed home value
- $880 property tax per year based on state median home value
- $52,032 median household income
Which States Have The Lowest Property Taxes
In 2019, taxpayers in Hawaii had the lowest property tax rates of anywhere in the country at just 0.31%. The next lowest states were Alabama at 0.37% and Louisiana and Wyoming, both at 0.51%.
Generally, the states with lower property tax rates tend to be those in the southern and western parts of the country. The biggest exception to this rule is Hawaii, which has the lowest property tax rate in the country. However, Hawaii also has the highest median home value in the country, so homeowners property tax bills in the Aloha State are likely higher than those in the other states listed.
Living in a state with lower property taxes has the clear benefit of reducing the burden of homeownership on taxpayers. This can be especially crucial for young or lower-income home buyers looking to break into the housing market for the first time.
Highest and Lowest Property Taxes by State
| Highest Property Tax Rate States: | Lowest Property Tax Rate States: |
|---|---|
| #1 New Jersey 2.13% |
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Limits Reduce Opportunity And Increase Inequities
Property tax limits not only encourage a shift from property taxes to sales taxes and fees, which increases burdens on low-income people and people of color, but also reduce opportunity and increase inequality, making it harder to create a desirable economy and quality of life.
In part because of historical racism and current discrimination, taxing jurisdictions in the United States are segregated by race, and property values tend to be higher in areas where white residents are concentrated. These white jurisdictions require relatively low property tax rates to fund adequate public services, since property values are higher. As a result, white homeowners typically pay lower effective property tax rates than African American or Hispanic homeowners.
In such circumstances, property limits typically provide more benefit to white homeowners, who are more likely than African Americans and other people of color to own high-value homes. One recent study found that whites received about 89 percent of the total tax savings from property tax limitations nationally in 2011. The authors wrote:
Indeed, Oregon has not adequately funded education, despite the requirement that the lost funds be replaced. Oregon public schools received 3.3 percent less funding per pupil from state sources in 2015 than they did in 2008, after adjusting for inflation. A report from the Oregon Center for Public Policy notes:
How Property Taxes Are Determined
Property taxes are determined by multiplying the assessed value of your property by the tax rate. The tax rate and mill levy are two different methods of expressing the same information. A tax rate is expressed as a percentage, whereas a mill levy is expressed in mills Assessed values are derived by multiplying the actual value of the property by 7.15% for residential property and by 29% for other property.
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Which States Have The Highest Property Taxes
The state with the highest property tax rate in 2019 was New Jersey at 2.13%. Second and third place went to Illinois with a 1.97% tax rate and New Hampshire at 1.89%. Vermont, Connecticut, Texas and Nebraska also had property tax rates higher than most of the country.
Some states such as Texas and New Hampshire rely heavier on property taxes than other forms of taxation like state income tax, which is why they are ranked high. In other states like New Jersey and Illinois, higher property tax rates are matched by higher rates of other taxes.
Living in a state with higher property taxes can have its benefits. These taxes are generally allocated towards community resources such as schools, libraries and fire departments. Having well-funded community programs like these can take the sting out of paying higher property taxes.
Effective Property Tax Rate By State
To compare property tax rates across the United States, we gathered effective property tax rate data from the Tax Foundations 2020 report and then multiplied that by $350,300, the median home value in the U.S. as of May 2021, according to National Association of REALTORS®.² This gives us a snapshot of what property tax rates may look like across the country.
Its important to note that effective property tax rates are a high-level way of finding and comparing property tax rates in different parts of the country. The only realistic way to find an approximate estimate of property taxes is to use a state or local property tax estimator. Find your local online tax estimator and applicable exemptions through your state or county website.
A Look At Effective Property Tax Rates Across The U.S.
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Property Tax As A Percentage Of Personal Income
In New Hampshire, the property tax represents 5.66% of the average personal income in the state. This makes New Hampshire the state with the highest property tax as a percentage of personal income. About 5.14% and 5.05% of the personal income in Vermont and New Jersey goes to covering property taxes. Considering that New Hampshire and New Jersey have the highest average property taxes by state, these stats arent unexpected. Just like Alabama scoring the last place didnt come as a surprise either. In this state, property taxes paid represent about 1.44% of the personal income of residents.
Property Assessments In Ontario
Properties in Ontario are assessed every four years by the Municipal Property Assessment Corporation . Most properties are assessed using a market value-based approach. There are three ways that MPAC uses to determine a propertys market value:
Direct Comparison Approach
Residential properties are valued under this approach. This compares the sales of similar properties in the assessment year to determine a valuation for the property. The assessed value may not equal the actual market value or sale value of a property.
Cost Approach
Unique and rarely traded properties are valued under this approach. This uses the cost of the property if someone were to rebuild it to determine a valuation for the property minus depreciation due to age or other factors. This includes the price of the land and the price of all improvements on top of it. While this takes into account the market value of the land, it does not consider the market value of the property as a whole.
Income Approach
For properties that are dedicated to generating income like rental properties or offices, an income-based approach is used. This approach uses the income generated by the property as well as the sales price to determine its assessed value.
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How The Appraiser Arrives At Value
The values of recently sold homes in your area can be taken into account when calculating value. The appraiser will compare your home to others similar to yours and value it based on those sales prices, using a method known as the market approach.
The cost approach is based on how much it would cost to replace your home, although this method is used less frequently with residential properties.
How To Qualify For A Senior Property Tax Reduction
There are some general qualifying criteria for senior property tax relief. Eligibility rules include:
The age standard differs from state to state, but it usually ranges from 6165 years. In some states, having a high income can disqualify you from getting property tax relief or reduce the amount of your property tax exemption.
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What Are The States With Low Property Taxes
Property taxes arent the same in California and Alaska, for example. This is why its smart to look for homes in states with lower property taxes. Take a look at the table below to find out which states have the lowest property taxes:
| Rate | |
| $256,427 | $65,774 |
This table could help you choose where to move and buy a house. If you already live in one of the more affordable states as far as property taxes are concerned, you should still look for possible exemptions that can help you pay property taxes. DoNotPay will assist you!
What Constitutes Lower Property Taxes For Senior Citizens
Property taxes vary from state to state, but the calculation process is more or less the same. A county assessor will assess your property value based on the current market rate in your area. Applying your areas property tax rate to the assessed property value results in your property tax amount.
Seniors struggle with property taxes because they tend to grow over time, while seniors income stays the same.
Senior citizens can typically apply for some property tax relief, depending on the state they live in. Available tax breaks for seniors in the U.S. include:
- Deferralsit refers to the possibility of postponing tax payments
- Tax creditssome states offer senior citizens credit for the portion of the real estate taxes or a yearly rent
- Exemptionsproperty tax exemptions typically reduce the value of your home that is subject to taxation
- Rate freezesthey prevent property tax increases for eligible taxpayers
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States Without Property Tax In 2022 Ranking Lowest/highest
The average homeowner in the U.S. pays nearly $2,400 in property taxes each year, according to Business Insider. However, thats an average number.
The fact is that property taxes vary significantly from place to place and can have a negative effect on cash flow if a real estate investor isnt careful.
In this article well look at the states with highest and lowest property tax rates, discuss how property taxes work, and offer some tips on keeping property taxes as low as legally possible.
