February 23, 2024

Property taxes can substantially impact how much you’re paying for your home and dig into your profits as a real estate investor. They also vary widely from state to state, with Hawaii’s average property tax rate at around 0.29% and New Jersey’s averaging approximately 2.46%. 

While there’s only a 2.17% difference between the two, that 2.17% equates to a lot of money. Let’s say you own two homes: one in Hawaii and one in New Jersey, and they both have an assessed value of $500,000. If you’re paying the average property tax rates for each state, you’ll owe $1,450 in Hawaii and $14,546 in New Jersey. That’s a $13,096 difference!

While there are no states without property taxes in 2023, many states have low property taxes. In this article, we’ll discuss what property taxes are, how they’re calculated, and list the states with the lowest property taxes.

What is Property Tax?

Property tax is based on the assessed value of your property, which is what government tax assessors perceive your property to be worth. Tax assessors determine this by analyzing current market conditions, your home’s size, comparable properties in your neighborhood, and any home inspection findings. While your assessed value is an excellent indicator of what your property is worth, it doesn’t always equate to fair market value. It can significantly differ from your property’s purchase price. 

Typically, assessors base property taxes on the property and land you own. In some areas, they may also tax you on boats, cars, RVs, or other personal property.

Why Are There No States Without Property Taxes

Property taxes make up much of your local government’s budget. They frequently contribute to the following:

  • Local public schools: Typically, 50% or more of your property taxes go to funding schools.
  • Public safety: Property taxes pay the salaries of police officers, firefighters, and other safety-related jobs. 
  • Basic maintenance: Including upkeep for your roads, parks, and sewer systems
  • Government and municipal administrators: Your property taxes help pay the salaries of your government officials.
  • Libraries: Libraries and librarians also receive funding via property taxes.

If municipalities or states had no property tax, we would need to find another way to pay for everything listed above. While no one wants to pay property taxes, they’re a necessary evil and the only major tax all 50 states have in common. 

How Are Property Taxes Calculated?

The amount of property taxes you pay is based on the previous year’s assessed value of your property and the levy rate in your area. The equation is:

Last Year’s Assessed Value x Current Levy Rate = Property Tax Amount Due

As mentioned earlier, government tax assessors calculate your assessed value. Meanwhile, your levy rate is determined by several factors, some of which are voter-approved. In other words, whenever you receive a voter pamphlet in the mail that talks about levy rates, whether or not they’re approved will impact how much you pay in property taxes.

It should also be noted that because property taxes are usually a local issue, county rates will vary, which impacts the average value for the state as a whole.

10 States With The Lowest Property Taxes

28 states and the District of Columbia have an average property tax rate of 1% or less. In other words, if your home is assessed at $500,000, you’ll pay $5,000 or less in property taxes in most of the United States. However, it’s important to remember that these are state averages. Depending on where you live, you could pay more or less. 

1. Hawaii

Effective Property Tax Rate 0.29%
County with the Highest Property Tax Rate Hawaii County, 0.39%
County with the Lowest Property Tax Rate Maui County, 0.21%

Hawaii offers sizable exemptions on owner-occupied residences. While the amount varies by county, homeowners are often eligible for $80,000 to $160,000 in exemptions. After the assessed value is calculated, applicable exemptions get subtracted before the local governments apply tax rates. 

If your assessed value is $500,000 and you qualify for a $120,000 exemption, you’ll only get taxed on $380,000. 

2. Alabama

Effective Property Tax Rate 0.43%
County with the Highest Property Tax Rate Greene County, 0.77%
County with the Lowest Property Tax Rate Choctaw County, 0.21% or less

The Public Affairs Research Council of Alabama reported that if Alabama had Mississippi’s tax rate (currently 0.81%), “the state would have an additional $1.5 billion to fund education, health care, highways, public safety, and the wide spectrum of state and local services provided.” 

One key reason Alabama has a low property tax is that the state’s constitution is tough to change. Instead of raising property taxes, local and state governments increase taxes like sales and sin taxes elsewhere. According to Al.com, It’s also one of only three states that charges a sales tax on groceries.

3. Colorado

Effective Property Tax Rate 0.52%
County with the Highest Property Tax Rate Kiowa County, 0.83%
County with the Lowest Property Tax Rate Jackson County, 0.20% 

Colorado’s property taxes are low for two reasons. First, they’re estimated in two-year cycles, meaning any assessment hikes occur every other year, not annually. The other, perhaps the more influential reason, is that property tax rates don’t apply to market value in Colorado. Instead, they’re used to the residential assessment rate, while the assessed value accounts for only a fraction of your home’s market value.

4. Louisiana

Effective Property Tax Rate 0.55%
County with the Highest Property Tax Rate Orleans Parish, 0.87%
County with the Lowest Property Tax Rate East Feliciana Parish, 0.15% 

Louisiana has the 4th lowest property tax rate in the U.S. and the 6th lowest combined state and local taxes of all 50 states. However, if you were to combine Louisiana’s property tax and vehicle tax rates, it would rank 25th in the U.S. 

5. Nevada

Effective Property Tax Rate 0.55%
County with the Highest Property Tax Rate Lincoln County, 0.79%
County with the Lowest Property Tax Rate Esmeralda County, 0.33% 

While you may gamble away your money in Las Vegas, you won’t lose out on much when paying property taxes in Nevada. In Nevada, homeowners are staving off significant property tax hikes thanks to the state’s property tax abatement law. This law puts a maximum of 3% on property tax bill increases throughout the state. 

Another reason why Nevada makes a list is that the state’s assessed value for a property only equals 35% of its taxable value. If you own a house with an assessed value of $300,000 in Nevada, you only pay real estate taxes on $105,000. 

6. Utah

Effective Property Tax Rate 0.57%
County with the Highest Property Tax Rate Duchesne County, 0.79%
County with the Lowest Property Tax Rate Summit County, 0.33% 

There are numerous factors that point to why Utah’s property tax rate is so low. Here are three main reasons why:

  1. Utah offers a 45% property tax exemption for primary residences. If your primary residence is assessed at $300,000, you’re only taxed on $135,000.
  2. According to UtahTaxPayers.org, “During the 1990s, the Legislature reduced the statewide basic levy for education twice.”
  3. Also, in the 1990s, some counties began reducing property taxes, opting to impose a sales tax instead. 

7. South Carolina

Effective Property Tax Rate 0.58%
County with the Highest Property Tax Rate Williamsburg County, 0.82%
County with the Lowest Property Tax Rate Horry County, 0.37% 

Like the others on this list, there are multiple reasons why the Palmetto State’s property taxes are below the national average. For example, owner-occupied residences enjoy a lower assessment rate than secondary homes and commercial properties. Owner-occupied residences benefit from an assessment ratio of 4% compared to non-primary residences, whose rate is 6%. 

Also, local tax assessors only reappraise properties every five years, and these reappraisals cap out at 15%. In other words, if your primary residence had an assessed value of $300,000 five years ago, the most it can be assessed for this year is $345,000. 

8. West Virginia

Effective Property Tax Rate 0.59%
County with the Highest Property Tax Rate Wetzel County, 0.81%
County with the Lowest Property Tax Rate Pocahontas County, 0.30% 

West Virginia is known for having lower tax rates in general, but this is especially true when it comes to property taxes. In West Virginia, a property’s assessed value equals 60% of its appraised value. If your home has an appraised value of $300,000, your assessed value is $180,000, which is what you’ll be taxed on. 

Also, homeowners must be notified if their home’s assessed value increased by 10% or more than $1,000 in a given year. This gives them a chance to appeal the valuation, which could further drive down what they pay in property taxes. 

9. Washington, D.C.

Effective Property Tax Rate 0.59%

While not a state, D.C. homeowners benefit from several property tax credits and deductions that help them reduce their tax burden. While these deductions don’t directly impact property tax rates, they reduce a property’s assessed value. Here are a few:

  • The Senior Citizen or Disabled Property Owner Tax Relief program cuts the property tax qualified applicants to owe by 50%.
  • If a homeowner’s principal residence is in D.C. and that property consists of five or fewer units, the assessed value is reduced by $75,700.
  • The Assessment Cap Credit limits the assessed value increases to 10% per year.

10. Arizona

Effective Property Tax Rate 0.60%
County with the Highest Property Tax Rate Pima County, 0.89%
County with the Lowest Property Tax Rate Apache County, 0.34% 

Arizona’s property tax rate is low for two standout reasons. First, property taxes in Arizona are assessed by the county, district, and city based on a home’s assessed value, which is only 10% of the limited property value. In addition, the total primary tax rate among all districts caps off at 1% of the property’s limited value for owner-occupied homes. Any rates that exceed 1% are reduced to 1%. 

Conclusion

While no state is property tax-free, there are plenty of states where you can enjoy very affordable rates. Before you do, check the property tax rate of the municipality you’re moving to, as it’ll often differ from the state’s median rate. Also, read the fine print regarding other taxes these areas impose. Sometimes, property taxes are low because the local governments are supplementing their budgets with other taxes, like sales tax or sin tax. As with most things, the more informed you are, the more likely you are to make the right decision for you. 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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