Property Taxes by State: Lowest to Highest Property Tax Rates in 2024

For US-based homeowners and real estate investors, the old saying, “There are only two things certain in life: death and taxes,” is painfully accurate. Property taxes are no exception.

Buy in the wrong location and they’ll make short work of the American dream.

So, before you sign on the dotted line, let’s uncover which states are the most (and least) tax-friendly for rental property investors like yourself.

What are Property Taxes?

Property taxes are recurring fees that homeowners and real estate investors pay to their local governments. They’re basically a “membership fee” for your community, used to fund essential services like schools, police and fire departments, road maintenance, and other local infrastructure.

Before we move on, a quick note on semantics: The terms “property tax” and “real estate tax” are used interchangeably. However, technically, there is a difference:

• Property tax is an umbrella term encompassing all taxes levied on property, both real and personal. Real property is immovable (land, buildings), while personal property is movable (cars, furniture).

• Real estate tax specifically refers to taxes levied on real property, such as houses, apartments, commercial buildings, and land.

For the average homeowner or investor, the terms are essentially synonymous, and we’ll be using them in this way from here on out.

States With Lowest Property Taxes

If low property taxes are a priority for your next rental investment, look no further than these five states:

1. Hawaii boasts the nation's lowest rate at a mere 0.29%. Surprised? Hawaii gets a big chunk of their budget from income and sales taxes, relieving the burden on the property tax side of things.

2. Alabama has the second-lowest at 0.41%. The state’s homes, farmland, and timberland are protected under the state’s constitution, making property taxes hard to raise.

3. Colorado keeps rates low thanks to the Taxpayer Bill of Rights (TABOR). This law caps how much the government can collect, making it investor-friendly even with the booming real estate market.

4. Louisiana's state-level property tax rate is 0.56%, one of the lowest in the country. The state offers property tax exemptions, such as the homestead exemption, which reduces the effective tax rate for many homeowners.

5. South Carolina is another low-tax haven, with a rate of 0.56%. The secret here is a mix of a high sales tax and a booming tourism industry that brings in cash.

To put these numbers in perspective, the national average property tax rate is a hefty 1.08%—that's nearly FOUR TIMES higher than Hawaii's rate.

Learn more: 15 best places to buy rental properties in 2024.

States With Highest Property Taxes

If dodging high property taxes is your goal, you might want to think twice about these five states. Let's take a closer look at the tax revenue heavy hitters:

1. New Jersey tops the list with a hefty 2.47% average property tax rate. Why so high? Dense population, pricey real estate, and a top-notch school system that requires funding.

2. Illinois’ property tax policy puts it in second place at 2.23%. It also leans heavily on property taxes to fund schools and services. The state's been facing financial challenges lately, and unfortunately, those higher taxes are part of how they're coping.

3. New Hampshire has a 2.09% tax rate. It's a trade-off, as they don't have income or sales taxes, so property owners pick up the slack.

4. Connecticut, with its high earners and top-notch public services, comes with a premium property tax rate of 2.15%.

5. Vermont boasts a 1.90% property tax rate. This reflects the state's commitment to well-funded public services, particularly its focus on education equality across all districts.

Remember, the national average is around 1.08%. That's less than HALF of what New Jersey residents are paying.

Do All States Have Property Taxes?

The short answer is yes—every state levies some form of property tax. However, savvy investors need to be aware of nuances and exceptions.

Tax rates vary drastically from state to state. As we've seen, a property in Hawaii is taxed at a tiny fraction of the rate compared to a property in New Jersey. But even within a high-tax state, certain areas might have lower tax rates on other commodities or specific exemptions that will significantly reduce the burden.

So, a word of warning. Don’t take things at face value. While places like Hawaii and Colorado might sound tempting, states often compensate for low property taxes and missed revenue with higher property and sales taxes. Those costs add up fast, especially for landlords who aren’t just investing in property in a specific state but are living there, too.

That's why smart investors look beyond the flashy headlines and analyze the total tax burden.

Learn more: How to buy your first rental property.

Property Tax Cuts and Relief Programs

Eligibility criteria for tax reliefs vary by state. Certain states also offer tax breaks for properties used for specific purposes, like agriculture or conservation.

While we won’t break down every single program here, as there are too many to list and they are frequently updated, here are a few examples of the types of relief you might find:

• Tax credits can be applied directly, often targeting specific situations like installing energy-efficient upgrades or owning historic properties.

• Tax deferrals allow you to delay paying a portion of your taxes. While not technically a “cut,” it can be a lifesaver if cash flow is tight.

• Rental property programs are offered by some states or municipalities through specific programs for rental properties. These might include tax credits for providing affordable housing or deductions for certain expenses.

Property Tax Exemptions

And tax exemptions, what about those? Let's take a look at some of the most common:

• Homestead exemptions lower the taxable value of a property, which means you'll pay less in taxes. The specifics vary by state, but typically, it's a fixed amount or a percentage reduction based on the property's value.

• Senior and veteran exemptions offer additional tax breaks for seniors or veterans. These can be quite substantial, so it's definitely worth looking into if you qualify.

• Disability and limited income exemptions are also available in some states. Under such exemptions, eligible individuals can qualify for property tax reductions.

• Agricultural exemptions allow land that is used for commercial purposes to qualify for lower tax rates, as these properties often have different valuations than residential homes.

Applying for tax cuts, relief programs, and exemptions usually involves filing paperwork with your local assessor's office. The specific process can vary, so check your state's website for guidance.

Property Taxes Ranked by State

Curious as to what the property taxes are outside the five least expensive and five most expensive that we covered earlier? Done—see all 51 states and districts below:

Data source: US Census Bureau, B25103 dataset.

Counties With Highest Tax Rates

Some places just like to take a bigger bite out of your paycheck. If you're looking for a deal, you might want to avoid these notorious high-tax counties:

• Marin County, California boasts stunning views and proximity to San Francisco. But that dream lifestyle comes with a hefty price tag. Median property taxes here exceed $10,000 annually, thanks to skyrocketing home values and California's overall high cost of living.

• Bergen, Essex, Hunterdon, Morris, Passaic, and Union counties—if you're in New Jersey, be prepared to pay up. All of these counties have median property taxes over $10,000. High property values, top-notch schools, and proximity to New York City all contribute to this hefty bill.

• Nassau County, NY, is no stranger to high taxes. This sought-after spot near NYC boasts great schools and amenities, but it'll cost you. Median taxes here also exceed $10,000, making it one of the priciest places to own property in the nation.

Below, you’ll find which ten counties pay the most in property taxes:

Data source: US Census Bureau, B25103 dataset.

Why Do Property Taxes Vary From State to State?

State property tax rates vary depending on several factors:

• State, county, and city tax authorities decide how much money they need to run things, from schools to garbage collection. Property taxes are a major source of that funding, so if those budgets are high, taxes often are, too.

• Some states provide more funding for local services than others, which means less reliance on property taxes. Others leave it largely up to local governments, resulting in greater variation across regions.

• Each state has its own mix of tax sources—income tax, sales tax, and property tax. A state with a high sales tax might rely less on property taxes to fund its budget.

• A booming economy can mean higher property values, leading to higher assessments and tax bills, even if the rate itself stays the same.

It's a complex puzzle, but one thing's for sure: understanding the tax environment of your state—and specific areas within it—is imperative for making smart investment decisions. Don't just look at the top-line number. Dig into the details to see how taxes impact your bottom line.

How Are Property Values Assessed?

Think property taxes are based on what you paid for your place? Nope—it's all about assessed value, which is what the government thinks your property is worth right now.

How do they come up with this number? Local assessors are the people behind the curtain. They crunch data annually or every couple of years using a few different methods:

• Sales evaluation is the most common method. They look at what similar properties in your area have sold for recently.

• Cost approach involves estimating the cost of replacing your house from scratch—materials, labor…the works.

• Income approach is another commonly used method. If your property is a rental, they'll look at the income it generates to figure out its value.

The assessed value isn't the final say, though. The government applies a tax rate, which is a percentage that varies by location. This rate is multiplied by the assessed value to calculate your actual property tax bill (you’ll see how this works in the next section).

What are Property Taxes Based On?

Property taxes are based on two factors:

1. The assessed value: the metric we just discussed, the value given to a property by a government assessor.

2. The local mill levy: a tax determined by a local government based on the determined funding requirements of various public services and governmental functions within a specific jurisdiction.

It's important to note that the assessed value is often a percentage of the property's market value, not the entire value. This percentage, known as the assessment rate, varies by locality. For example, if a home’s market value is $500,000 and the assessment rate is set at 8 percent, the assessed value would be $40,000.

So, how are property taxes calculated? It’s fairly straightforward. Just multiply the assessed value by the mill rate.

For example, if a property’s assessed value is $40,000 and the mill levy is 4.5 percent, you’d

1. convert the 4.5 percent mill rate into a decimal: 4.5 / 1,000 = 0.0045

2. and then multiply the assessed value of $40,000 by the mill rate of 0.0045 = $1,800.

If you owned the example property, you’d pay $1,800 annual property tax or $150 per month.

The Impact of Property Taxes on Homeowners

Property taxes aren't just a line item on your bill. Oh, no. They can significantly impact your finances and your real estate decisions. For homeowners, those annual tax payments add up, especially in areas with high rates, making housing less affordable.

For rental investors, property taxes are a make-or-break deal. If the tax rate is sky-high, your rental income gets eaten up before you even see a profit.

Here's a couple of things to consider for landlords:

• High property taxes severely limit your cash flow, making it hard to cover unexpected expenses or reinvest in your property.

• If you have to pass those high taxes onto your renters, it could lead to higher vacancy rates or force you to accept less qualified tenants.

That's why savvy investors factor in the tax burden when evaluating potential markets. It's not just about home prices—it's about the continued cost of ownership.

Learn more: How much rent should I charge?

How to Effectively Manage Your Property Taxes

With a bit of planning and know-how, you can take the sting out of that annual bill and keep more of your hard-earned rental income.

First things first: set aside some cash each month. You'll thank yourself later when that tax bill arrives. Even a small amount saved regularly can make a big difference.

Next, know your options. Some states let you pay your taxes in installments throughout the year, which can make it more manageable. Check with your local tax office to see what's available.

Don't forget about those sweet exemptions and relief programs. As we discussed earlier, there might be ways to lower your property tax bill depending on your situation. It's worth digging into those options, as they could save you a bundle.

And don't be afraid to ask for help. A tax professional will guide you through the ins and outs of deductions and credits specific to your state. It might seem like an extra expense, but their expertise could save you way more than it costs (plus, their services are tax deductible).

Learn more: helpful tax tips for landlords.

Maximize Your Property Value

Understanding the factors that influence tax rates, researching your state's specifics, and taking advantage of potential exemptions, will allow you to take control of your tax burden and protect your investment.

Remember, being a savvy property owner isn't just about finding the right property; it's about making smart financial decisions.

Ready to make your property work for you? Explore our range of property management services and take the first step towards a stress-free, profitable future.