Residents of the United States are familiar with paying taxes. Individuals pay federal income taxes and additional state income taxes that vary depending on their state of residence. In addition to income taxes, property taxes may also be applicable.
Property tax is a real estate ad-valorem tax, considered a regressive tax, levied by the jurisdiction in which the property is located and paid for by the property owner. Taxes are determined by multiplying the property tax rate by the current market value and are recalculated annually. Property taxes are used to fund education, infrastructure, law enforcement, parks and recreation, public transportation, and water and sewer improvements.
Unfortunately, every state has property taxes; however, some property taxes are very low and others do not apply to vehicles. States that have lower property taxes may have higher costs elsewhere, such as a high sales tax, in order to make up for the costs.
States with the Highest Property Tax Rates
Some of the highest property taxes can generally be found in the northeast, with the highest rate being 2.44% in New Jersey. The average homeowner in New Jersey paid $8,500 per home in property taxes. One reason for the property tax rate being consistently high in New Jersey is that county and municipal governments cannot impose local income or sales tax in New Jersey as they can in other states. Property taxes pay for most of everything in New Jersey.
The second-highest property tax rate is in Illinois. The property tax rate is 2.31% in Illinois. In 1996, Illinois property tax bills were around the national average and then saw an 80% increase in the following 20 years. Home value appreciation has been lagging despite property taxes increasing quickly.
New Hampshire has the third-highest property tax rate in the U.S. of 2.20%. Residents of New Hampshire pay a higher percentage of income in property taxes (5.6%) than any other state. The high property tax rate has made it hard for younger people to purchase homes because the property tax bill is often larger than their mortgages. New Hampshire, however, does not impose an income tax on earned salaries or wages and does not have a sales tax.
The fourth-highest property tax rate is in Connecticut, which has a rate of 2.07%. The state per capita tax burden is at $2,847, twice the national average of $1,518. Property taxes now total over $11 billion annually in Connecticut. Local officials are worried that relying on property tax to fund the local government is unsustainable.
Wisconsin has the fifth-highest property tax rate in the United States of 1.94%, which finally dips just below 2%. Per capita property taxes in Wisconsin are about $1,615.71, above the national average. The median home value in Wisconsin in $178,900 and the median household income is $59,305.
States with the Lowest Property Tax Rates
As previously stated, there are no states that have no real estate property tax. There are 26 states, however, that have property taxes below 1.00%.
Which state has the lowest property tax rate? Hawaii has the lowest property tax rate of 0.27%. Although this rate is very low, Hawaii has a very high median house cost; therefore, homeowners will still expect to pay around $1,529 in property taxes.
Alabama has not only the second-lowest property tax rate of 0.42% but also has one of the lowest median home prices ($130,500) well below the median home value in the United States ($225,300). This makes the median annual tax only $558.
Louisiana has the third-lowest property tax rate in the U.S. of 0.52%. Louisiana’s property tax rate is less than half that of the national average of 1.08%. One reason that property taxes are so low is the state’s homestead exemption, which reduces the taxable value of owner-occupied properties by $7,500 in assessed value.
Colorado has the fourth-lowest property tax rate of 0.55%. With the average home value being the fifth-highest in the nation, homeowners can expect to pay the 21st lowest average property tax bill in the country instead of the fourth-lowest.
Delaware has the fifth-lowest property tax rate in the U.S. of 0.56%. Delaware’s high income tax rate is offset by its low property tax rate and lack of retail sales tax. The low property taxes are attractive to residents, especially retirees, of other states, especially the state’s neighbor, New Jersey, which has the highest property tax rate in the country.