Property tax can be a real nuisance, but are there states with no property tax? Unfortunately, there are no states with no personal property tax, but that does not mean that all states are created equal. While all states use property tax to maintain roads and provide government services, some states have much lower property taxes than others.
The reality of the situation is that if you are a new homeowner or if you are looking to invest in real estate, no property tax would be ideal for you, but if you can’t get property tax, the next best thing would be low tax states.
In this article, we will examine what decides property tax, which states have lower property taxes, and which states have high property taxes.
How are property taxes calculated?
There is a lot to think about when it comes to calculating property taxes, and it is going to vary not just from state to state, but also from local municipality to local municipality. However, there are a few constants and patterns to be seen.
Tax assessors will evaluate the value of property sometimes yearly and sometimes every few years. Either way, they are generally looking for three things:
- Sales Comparison: This is when a property is compared to other properties of similar design and use that have been sold. This comparison is used to assess what a property might be valued at.
- Cost Method: This is an assessment that sees what a property would be worth if it was rebuilt from the ground up, with consideration for things like the value of the land or general depreciation.
- Income Method: This is, essentially, an assessment of what the property could make for the owner, like if it was rented. Upkeep and business costs are also factored in when this type of method is assessed.
Other factors may play out when calculating property taxes. For example, as a general rule, investors in property tend to pay more in property taxes than owner-occupants, i.e. people who actually reside in the property. This plays into the Income Method of assessment, as a property that brings in profit without the owner needing to be there tends to make more money.
From here, the assessed value is multiplied by the state’s property tax percentage. So, if a property has an assessed value of one million dollars, and the state has a property tax rate of .55%, then the equation would be:
1,000,000 x .0055 = $5,500 a year
States with the lowest property tax rates
While there is no such thing as states without personal property tax, there are a few states that have very low tax rates. This is, generally, going to be based on not only the tax rate but also the value of the properties in the state.
The best low tax state when it comes to property is Louisiana. Boasting the lowest property tax rate at .18%, people in the Cajun state pay a median average of about $243 a year.
Hawaii is also surprisingly low. Though the median average is higher than other low tax states at $1324 a year, likely due to property values being significantly higher, Hawaii’s property tax rate is a staggeringly low .26%.
Alabama, West Virginia, Arkansas, and Mississippi all have incredibly low median yearly property tax rates, ranging from under $400 to slightly over $530, despite the fact that the property tax rates are between .30% and .55%. This is likely due to the property values being overall low.
States with high property tax rates
All the states with the highest property tax rates have a high tax percentage based on home value and have lots of high-value properties. All of the states in the top ten when it comes to high property taxes have over a 1% tax rate on assess value.
New Jersey is the worst for this. The Garden State has the highest tax rate at 1.89%, with a median yearly average of over $6500.
New Hampshire doesn’t follow far behind with a tax rate of 1.86% and a median yearly average of over $4600.
New England states are not the only high tax rate states, though, as Texas has a 1.81% tax rate, with residents paying over $2200 a year on property taxes. In the midwest, Nebraska sits at 1.71% and has a median yearly average of $2100.
Everyone hates property taxes, so if you are looking to invest in real estate, Louisiana, Hawaii, Alabama, West Virginia, Arkansas, and Mississippi may be the places for you.