Property taxes are a crucial revenue stream for local governments, funding essential services such as schools, road maintenance, public transportation, and emergency services. However, the amount you pay in property taxes can vary significantly depending on where you live. Here, we explore how property taxes work and identify the states with the lowest property tax rates.
Read: Buying a House? Understand these House Taxes Advantages
The Role of Property Taxes
Local governments rely heavily on property taxes to finance various public services. These taxes are used to support educational institutions, maintain infrastructure, fund parks and recreation programs, operate public transportation systems, and pay for public safety services including police and fire departments.
Variation in Property Tax Bills
The amount homeowners pay in property taxes can differ widely across the United States. According to the Tax Foundation, the average property tax bill nationwide was $1,682 in 2021. However, this figure varies dramatically, with some areas, such as Madison Parish, Louisiana, seeing annual bills as low as $215, while parts of New Jersey and New York State experience bills exceeding $10,000 annually. In some regions of Alaska, property taxes are non-existent.
Top 10 States with the Lowest Property Taxes
If you're curious about the states with the lowest property taxes, here's a list of the top ten, including their effective property tax rates, typical home values, annual taxes for homes at those values, and median household incomes to provide context.
1. Hawaii
- Effective Property Tax Rate (2019): 0.31%
- Typical Home Value (2022): $828,002
- Annual Taxes on Home Priced at State Typical Value: $2,566.81
- Median Household Income (2019): $83,102
Hawaii boasts the lowest effective property tax rate in the nation, but with the highest typical home values, homeowners may still face substantial tax bills. Despite high median incomes, Hawaii's high cost of living can offset these financial benefits.
2. Alabama
- Effective Property Tax Rate (2019): 0.37%
- Typical Home Value (2022): $189,976
- Annual Taxes on Home Priced at State Typical Value: $702.91
- Median Household Income (2019): $51,734
Alabama features both low property tax rates and affordable home prices, making it one of the most cost-effective states for homeowners. However, it also has a relatively high poverty rate.
3. Louisiana
- Effective Property Tax Rate (2019): 0.51%
- Typical Home Value (2022): $203,222
- Annual Taxes on Home Priced at State Typical Value: $1,036.43
- Median Household Income (2019): $51,073
Louisiana's low property tax rates and below-average home values make it an affordable state for homeowners. Yet, it has one of the highest poverty rates in the country.
4. Wyoming
- Effective Property Tax Rate (2019): 0.51%
- Typical Home Value (2022): $303,325
- Annual Taxes on Home Priced at State Typical Value: $1,546.96
- Median Household Income (2019): $65,003
Wyoming combines no state income tax with low property taxes. Despite a moderate cost of living, its low sales tax and decent median household income make it an attractive option.
5. Colorado
- Effective Property Tax Rate (2019): 0.52%
- Typical Home Value (2022): $545,794
- Annual Taxes on Home Priced at State Typical Value: $2,838.13
- Median Household Income (2019): $77,127
Colorado's low property tax rate is countered by higher home prices, resulting in a relatively high tax bill. However, the state's high median income and low poverty rate make it manageable for many residents.
6. South Carolina
- Effective Property Tax Rate (2019): 0.53%
- Typical Home Value (2022): $261,882
- Annual Taxes on Home Priced at State Typical Value: $1,387.97
- Median Household Income (2019): $56,227
South Carolina offers low property taxes and affordable home prices, though it has a higher poverty rate compared to the national average.
7. West Virginia
- Effective Property Tax Rate (2019): 0.53%
- Typical Home Value (2022): $126,948
- Annual Taxes on Home Priced at State Typical Value: $672.82
- Median Household Income (2019): $48,850
West Virginia's low property taxes and home prices result in the lowest housing costs in the nation, despite a higher poverty rate and higher sales tax rate.
8. Utah
- Effective Property Tax Rate (2019): 0.56%
- Typical Home Value (2022): $529,509
- Annual Taxes on Home Priced at State Typical Value: $2,965.25
- Median Household Income (2019): $75,780
Utah has higher property taxes and home values, but this is balanced by a higher median household income, making it relatively affordable for its residents.
9. Delaware
- Effective Property Tax Rate (2019): 0.59%
- Typical Home Value (2022): $332,115
- Annual Taxes on Home Priced at State Typical Value: $1,959.48
- Median Household Income (2019): $70,176
Delaware's property taxes are moderate, but it has a higher cost of living in several categories. Its higher median income and lack of sales tax provide financial relief.
10. Arkansas
- Effective Property Tax Rate (2019): 0.61%
- Typical Home Value (2022): $166,566
- Annual Taxes on Home Priced at State Typical Value: $1,016.05
- Median Household Income (2019): $48,952
Arkansas combines low property taxes with affordable home prices, resulting in a low cost of living. However, the state has a high sales tax rate.
Property Tax Exemptions and Reductions
Depending on where you live, you may qualify for property tax exemptions or reductions. Some states offer homestead exemptions, which reduce taxes on a portion of your home’s value. Other exemptions may be available for seniors, veterans, people with disabilities, or those making certain home improvements or installing renewable energy systems. It’s important to contact your local tax authority to see if you qualify for any tax relief programs.