Comparison of property tax rates across statesWhen purchasing a home, one of the important considerations is the amount of property tax to be paid annually. The property tax rate may vary across states due to multiple factors, such as state laws, property values, and local government budgets. According to the one-year American Community Survey (ACS) Estimates from the Census Bureau, the national median property tax rate stands at 1.08%. Comparing property tax rates across states can allow for an informed decision when selecting a place to live. Among the highest property tax rates in the U.S. are New Jersey, Illinois, and New Hampshire, all exceeding 2%. Conversely, states with the lowest rates are Hawaii, Alabama, and Louisiana. In fact, Hawaii holds the record for the least rate of property tax in the U.S. at a mere 0.27%.
How each state’s median home value affects property taxesAnother key factor in determining property tax rates is the median value of homes in each state. The amount of property tax paid is generally proportional to home value, with more expensive homes incurring higher annual rates. Comparing the median home value and property tax rate of each state can allow potential homebuyers or homeowners to anticipate their financial obligations more accurately. Some states, such as Connecticut, Minnesota, and Massachusetts, have a relatively high median home value, resulting in more substantial property tax burdens despite relatively low tax rates. In contrast, states with a lower median home value, such as Alabama, West Virginia, and Mississippi, have lower property tax rates.
Top states with the lowest property tax ratesWhile Hawaii has the lowest property tax rate in the U.S., there are several other states that have a low annual property tax bill. Below are the top states with the lowest property tax rates in ascending order:
- Hawaii – 0.27%
- Alabama – 0.42%
- Louisiana – 0.51%
- Delaware – 0.55%
- District of Columbia – 0.55%
Why Hawaii has the lowest property tax rateOne may wonder why Hawaii has such a low property tax rate compared to other states. The answer is mainly due to the state’s reliance on tourism as the primary source of revenue. Rather than relying on property taxes, the state uses taxes on tourism, including taxes on hotels, motels, and other types of lodging. This way, Hawaii can attract more visitors while keeping the cost of living low for its residents. It is also worth noting that Hawaii provides a significant homeowner exemption. For owner-occupied homes, the first $1 million in assessed value is exempt from property taxes. This exemption can substantially reduce the property tax bill, even for higher-priced homes.
Potential drawbacks and benefits of living in a low-property-tax stateLiving in a state with low property tax rates, such as Hawaii, has its benefits and drawbacks. Some of the benefits include:
- Low annual property tax bill
- Lower cost of living compared to other states with high property taxes
- Attractiveness to potential homebuyers or investors
- Lower revenue for local government, potentially leading to reduced public goods and services
- Higher sales tax or other types of tax to make up the lost revenue from property taxes
- Higher home prices, as the lack of property taxes may increase home values
Ways to reduce your property tax bill regardless of where you liveWhether residing in a state with high or low property tax rates, there are several ways to reduce the annual property tax bill. Here are some strategies to consider:
- Claim homeowner exemptions, if available in your state
- Challenge your property’s assessed value if you feel it’s too high
- Make repairs and renovations that can increase your property’s value and reduce the tax rate
- Appeal to local government and plead for a reduction in property tax rate, especially if there’s evidence of decline in value or difficult circumstances
- Consider investing in energy-efficient features that may qualify for tax breaks or credits