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How Do State Property Taxes Work?

Written by The Realized Team | Jul 31, 2020

Not all states have income taxes, but the same can’t be said for property taxes. Every state and the District of Columbia have property taxes. 

Property taxes come from local levies such as counties, municipalities, townships, special districts, and school districts. Revenues from property taxes fund essential services for local municipalities. These include fire, police, EMT, and other city services.

The amount in property taxes that a municipality charges vary with its size and services offered. For a homeowner, property taxes can range from a few hundred dollars per year up to tens of thousands of dollars per year. The exact amount is a function of a home’s tax assessment, which of course, is determined by the municipality.

According to a 2019 property tax study by ATTOM Data Solutions, Illinois had the highest average annual property taxes among all states at 2.22 percent. The average property taxes in Hawaii were only 0.36, the lowest among all states. The county of Westchester, New York, had the highest county taxes at $18,103.

Want to know what you can expect in property taxes in your state or one you might be considering moving to? In this article, we’ll look at the highest and lowest property taxes by state.

What Goes Into Your Property Tax Bill?

Several components go into your property tax bill. Your local jurisdiction determines the amount to charge for those components. Municipal service budgets such as fire departments, schools, utilities, and more determine how much your tax bill will be, along with your assessed property value. This bundle of costs is your property tax bill, also known as an effective property tax rate or mill rate.

As mentioned above, property tax rates vary significantly from one jurisdiction to another. One home valued at $300,000 might pay $2,000 in taxes while a $600,000 home pays the same amount. It all goes back to the needs of the various municipality services that are included in your tax bill.

States With The Highest Property Taxes

From the same ATTOM Data Solutions study, the following states had the highest property taxes in 2019: 

  • Illinois — 2.22 percent
  • New Jersey — 2.19 percent
  • Texas — 2.11 percent
  • Vermont — 2.11 percent
  • Connecticut — 2.04 percent
  • New Hampshire — 1.93 percent
  • New York — 1.87 percent
  • Pennsylvania — 1.75 percent
  • Ohio — 1.68 percent
  • Nebraska — 1.57 percent

Paying higher property taxes doesn’t exactly translate to a net negative for the homeowner. For residents of high property tax states, they make up some of the difference through other savings. For example, Texas doesn’t have a state income tax, and there’s no sales tax in New Hampshire.

New York and New Jersey have some of the highest property taxes in the U.S., but they also have some of the highest-valued homes in the U.S.

States With The Lowest Property Taxes

If you’re wondering who pays the lowest tax rates, below are the ten lowest rate states:

  • Hawaii — 0.36 percent
  • Alabama — 0.48 percent
  • Colorado — 0.52 percent
  • Utah — 0.56 percent
  • Nevada — 0.58 percent
  • Tennessee — 0.61 percent
  • West Virginia — 0.61 percent
  • Delaware — 0.62 percent
  • Arizona — 0.63 percent
  • Wyoming — 0.65 percent

How To Lower Your Property Tax Bill

If you’re currently paying high property taxes, there are a few ways to lower your tax bill.

  • Property tax exemption — many states offer partial or full property tax exemptions if you meet the qualifications. These exemptions are available to disabled residents, veterans, seniors, and more.
  • Homestead exemption — if your home is your primary residence, you may qualify for a homestead exemption. This exemption shields a percentage of your home’s value or a specific dollar amount from taxes.
  • Challenge tax assessment — if you believe that your tax assessment is too high, you can challenge it. Getting a lower assessment can result in significant property tax savings.

Property taxes can be declared on your annual income tax return as part of your state and local tax (SALT) deduction. Just be aware of your limits when itemizing deductions.

Understanding And Budgeting Your Property Taxes

Before buying a home in a new community, know what the local property tax rate is. Look at historical rates as well to understand how property taxes have fluctuated and trended through the years. If you aren’t bundling your property taxes into your monthly home’s escrow payment, be sure to budget annually for your property tax bill, which will likely be a fairly large part of your overall budget.