A mortgage may not be the only major expense you’ll have if you choose to buy a house. You’ll also owe property taxes. Property tax is a tax paid every year to your local government, based on the value of the property you own, for as long as you own it. The money you pay funds public schools, road and highway construction, fire departments, and other public services.
Some states have higher property tax rates than others. If you live in New Jersey (the state with the highest property taxes), your average tax bill is $8780. That’s roughly $730 per month, just in property tax expenses. Saving $700 per month for as long as you own your property can be a good incentive to move. Take a look at the top 10states with the lowest property tax to compare how much you can save.
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States With Low Property Tax
The following states have the lowest average property tax rates in the country. The average rate is shown since property taxes may vary from one county to another. Median home values are also included to give you an idea of whether owning a home in the state is affordable.
Average property tax rate: 0.29%;
Median home value: $638,007;
Average annual property tax bill: $1,850.22.
Hawaii has the lowest property tax rate in the country, but the median home value is high. Moving to Hawaii may save you money on property tax as a percentage, but the cost of living is more expensive in other ways. Homes are more expensive. And so is the price of filling up at the fuel pump — Hawaii has the highest gasoline tax (48 cents per gallon) of all the states on this list.
Average property tax rate: 0.40%;
Median home value: $140,030;
Average annual property tax bill: $560.12.
Alabama comes in second and shows you how much you can save when you live in a state with affordable median home values and low property tax rates. Compared to New Jersey’s $730 per month average property tax bill, you’d pay roughly $46 per month in taxes in Alabama. The state relies heavily on sales tax revenue to fund any shortfalls. The total sales tax rate (according to the county) varies between 5% and 11.5%.
Average property tax rate: 0.51%;
Median home value: $167,376;
Average annual property tax bill: $853.62.
Another state with low property taxes and low median home values, Louisiana has to supplement public funding with other tax sources. Louisiana collects state income tax and sales tax. Sales tax rates vary between 4.450% and 11.450% and make up for the shortfall in property tax collection, which is only 22.8% of the tax collected by the state.
4. West Virginia
Average property tax rate: 0.53%;
Median home value: $107,789;
Average annual property tax bill: $571.28.
West Virginia is one of the best states for low property taxes. The state charges a gasoline tax of nearly 35 cents per gallon to fund public services and schools. Besides the gas tax, the state collects an average of $1,009 in local and state income tax per capita.
Average property tax rate: 0.55%;
Median home value: $252,310;
Average annual property tax bill: $1,387.71.
Wyoming may be paradise if you’re looking to save on taxes across the board. The state has no corporate or personal income tax and only charges a 4% sales tax rate, among the lowest nationwide. The higher property values must provide enough funding to cover a good portion of the state’s expenses — property tax collections amount to 43% of the revenue the state collects in taxes.
6. South Carolina
Average property tax rate: 0.56%;
Median home value: $187,337;
Average annual property tax bill: $1,049.09.
Comparing South Carolina with Delaware (number 7) for the cheapest place to live is tough. Both states have similar gas taxes and the same property tax rate. Delaware charges no sales tax, while South Carolina charges 6%. The two states are closely matched when it comes to the cost of living, but if you had to choose one, South Carolina edges Delaware out in homeownership costs due to lower median home values.
Average property tax rate: 0.56%;
Median home value: $254,717;
Average annual property tax bill: $1,426.42.
South Carolina and Delaware share the same property tax rate, but Delaware’s home values are higher, making homeownership more expensive in Delaware. The tiebreaker could be sales tax — Delaware has no sales tax, saving you 6% on all your retail purchases when compared to South Carolina.
Average property tax rate: 0.59%;
Median home value: $398,753;
Average annual property tax bill: $2,352.64.
Colorado’s tax rate may be low, but its property values drive up the annual property tax bills. The state’s property tax collections account for 30% of its total tax revenue, with personal and corporate income taxes and sales tax adding to the state’s coffers. Marijuana tax revenue outpaces other forms of taxes to provide a needed infusion into the state’s budget.
Average property tax rate: 0.63%;
Median home value: $128,777;
Average annual property tax bill: $811.30.
The low cost of homeownership in Arkansas is offset by the third-highest sales tax rate in the country (9.41%). If you shop often, the nearly 10% sales tax on your food, supplies, and retail purchases may eat up any savings you earned from lower property taxes.
Average property tax rate: 0.64%;
Median home value: $126,788;
Average annual property tax bill: $811.44.
Mississippi may have the highest average property tax rate on the list, but it’s still more affordable than other states.? Mississippi has low taxes in many categories. Income and corporate taxes are as low as 3% and no higher than 5%. A unique form of state revenue is the casino tax. Casinos are required by law to withhold a non-refundable 3% from all gambling winnings, even for non-resident players.
How Are Property Taxes Calculated?
Property taxes can vary from one state to another — and the method your state or county uses to calculate how much you’ll owe does, too. Your local tax assessor will value your property to know how much your property tax bill should be. The valuation may be done annually or every few years, depending on your state’s laws. The assessor will use one of the three following methods:
- Cost method: The assessor will calculate the cost of rebuilding your home from scratch. The costs include the value of your land, materials, and labor.
- Income method: Usually used to value commercial properties, the assessor estimates the property’s value depending on how much income you would earn from renting it. Expenses such as insurance and maintenance are factored into the income valuation.
- Sales comparison method: Perhaps the easiest way to value your property, the assessor compares your property to similar, recently sold ones in the area.
Once the assessor assigns a value to your property, your home’s assessed value is multiplied by the property tax rate. You’ll receive a property tax bill for the amount, due once per year, or in many cases, due in two smaller installments.
The payments you make to your local tax collector are used to fund public services including:
- Local police;
- Fire departments and personnel;
- Schools and libraries?;
- Highway construction and road maintenance.
Many property tax bills will provide a breakdown of how much goes to your local services, so you have a better idea of how your money is being spent. Although most people would prefer to avoid paying property taxes, knowing that they go towards education, public infrastructure, or safety services may make the tax bill a little less painful to pay.
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