Property taxes are an important source of revenue for the city, state, and federal governments, which use the money to finance projects such as schools, road construction, maintenance, recreational centers, parks, public transport, and payroll for metropolitan employees. Municipal employees in this instance include the police, fire department, and local public works department.
Depending on where you live, you may be able to pay a modest amount in property taxes, or your tax bill could compete with your mortgage. In the United States, the average effective property tax rate (total property taxes paid / total housing value) was 1.13%, according to data from the Tax Foundation, a tax policy research organization. Hawaii has the lowest rate in the country, just 0.29%. New Jersey stood out for the highest rate, reaching 2.16%.
Key Points to Note
States impose property tax each year based on the estimated value of land structures and property.
If you like to live on a large piece of land and in a large house, you may want to move to a state with lower property tax rates to simplify your portfolio.
Hawaii has the lowest effective tax rate (0.29%), while New Jersey has the highest tax rate (2.16%).
Several other states have property tax rates below 1%, many of which are located in the southern United States.
Some states offer individual loans and exemptions to qualified homeowners, which can further reduce their effective property tax rates.
Top States for Property Taxes
If you're curious to see how low property taxes can be, check out the list of top 10 property taxes. Also listed is each state's average home value, effective tax rate, annual taxes on a home whose price is the average state value, and average household income to help set the tax rates in context.
To establish the states with the lowest property taxes, we have revised the average effective tax rate (total real taxes paid / total value of houses) for owner-occupied houses in all 50 states. Below is the list of the top ten best states for property tax
Hawaii
Effective property tax rate: 0.29%
Average value of homes: $ 620,400
Annual housing taxes assessed at average state value: $ 1,799
Average household income: $74,923
Hawaii has the most inexpensive effective property tax rate in the country. It also has the highest average home value, which means homeowners here may still be at risk due to a heavy utility bill.
Alabama
Effective property tax rate: 0.40%
Average home value: $130,500
Annual housing taxes assessed at average state value: $522
Average household income: $46,472
Alabama has a low tax rate and house prices, well below the average value of homes in the United States ($ 225,300 in February 2019), making it one of the most affordable.
Louisiana
Effective property tax rate: 0.51%
Average home value: $ 147,200
Annual housing tax assessed at the average state value: $751
Average household income: $46,710
Louisiana is another state with a low effective tax rate and average real estate values below the national average. Gasoline taxed at 20 cents a gallon here, one of the lowest in the country
West Virginia
Effective property tax rate: 0.53%
Average home value: $ 97,600
Annual housing tax assessed at the average state value: $517
Average household income: $43,061
West Virginia's low effective tax rate and modest prices
South Carolina
Effective property tax rate: 0.56%
Average home value: $ 165,100
Annual housing tax assessed at the average state value: $925
Average household income: $48,781
Delaware and South Carolina have the same effective tax rate of 0.56%, but significantly lower average residence values in South Carolina give the state a cost-of-living advantage.
Delaware
Effective property tax rate: 0.56%
Average home value: $ 237,300
Annual housing taxes assessed at average state value: $1,329
Average household income: $63,036
Since Delaware and South Carolina have the same effective property tax rates, higher average residential values in Delaware mean that homeowners are likely to pay more property taxes. However, Delaware has a higher average family income, and, as a bonus, the state has no sales tax.
Colorado
Effective property tax rate: 0.59%
Average home value: $ 375,500
Annual housing taxes assessed at average state value: $ 2,215
Average household income: $65,458
Colorado's effective tax rate is low, but higher home prices mean homeowners will pay $ 2,215 for an average-priced home, the highest tax (in $) of any of the states on this list. Colorado's average family income is the second-highest on this list, which can lower the tax bill a little cheaper.
Arkansas
Effective property tax rate: 0.63%
Average home value: $ 125,700
Annual housing taxes assessed at average state value: $792
Average household income: $ 43,813
A low effective tax rate, combined with low housing costs, helps to achieve an attractive cost of living in Arkansas. Gas has a tax of 22 cents per gallon, well below the national average of 36 cents per gallon in 2018, but sales tax is at its peak, with a combined state and local tax of 9.41% (the highest in the country).
Mississippi
Effective property tax rate: 0.64%
Average value of the house: 127,300 USD
Annual housing taxes assessed at average state value: $815
Average household income: $42,009
Mississippi has the most high-priced effective property tax rate on this list, but it's still far below the U.S. average of 19 cents per gallon, one of the lowest rates in the country and tax rates on income.
Bottom Line
Depending on where you live, you may be eligible for a property tax exemption provided by your state or local jurisdiction. Some states offer an exemption for a family home, for example, if you do not pay taxes on a certain part of your home's value if you meet certain age or income requirements.
There may be other types of tax-exemptions for older homeowners, people with disabilities, military veterans and homeowners who are doing some renovations or installing renewable energy systems because these discounts do not automatically appear on your tax account, it is important to ask a tax professional to find out if you are eligible.
