10 best states for property taxes
As a prospective homeowner (and property owner in general) it can be very important to choose the best state to invest in. Each one of the U.S. states has its own property tax rate and figuring out the best states for property taxes can make a huge difference. Furthermore, most of the top states have great tax debt relief options as well. But why do states collect property taxes in the first place and why do the tax amounts differ by state? Join us as we explore the topic in greater detail, and provide you with an overview of the top 10 best states when it comes to property taxes.
Property taxes and why they are so important
The main reason why the government collects property taxes is the fact that they are one of the main revenue components. The money from property taxes funds all sorts of civic projects. Public transportation is a prime example, as is road construction and maintenance, public school system, parks, etc. Property taxes also help pay for firefighters, police officers, and for the entire public sector.
As you might imagine, paying for all those things can get quite expensive. For this reason, many states choose to levy high property taxes on their residents. Depending on the state, the property tax bill can very well rival your mortgage payments! According to a 2021’s report by the Tax Foundation, the average property tax rate across the entire country was 1.03%. This number represents the total property taxes paid divided by the total home value.
It is also worth mentioning that taxpayers are required to pay a minimum property tax in every single state in the country. Some states might choose to allow some taxpayers to forgo paying some of their property taxes, given specific conditions but everyone needs to pay a tax for their property, for the most part.
When it comes to the best states for property taxes, they all have their property tax rates set below 1%. In fact, the top 10 is closer to 0.50% than 1%. But the tax rate is not the only thing that may influence your calculation. In some states, taxpayers can get sizeable exemptions and individual credits, meaning that their effective tax rates may end up much lower. In other words, it is important to take as many things into consideration as possible and not only to look at the state’s tax rate.
Top 10 best states for property taxes
To get this list, we’ve considered several factors in our comparison. There’s the tax rate, of course, but we also evaluated the state’s typical home value, median household income, as well as annual property taxes based on the average value of a home in the state. While the typical home values may change over time (as can the tax rates), we believe that these states are going to maintain their property-tax-efficiency ratio for quite some time. Here are the best states for property taxes:
- West Virginia
- South Carolina
The State of Arkansas combines very low home prices with a low property tax rate. The average home value in the state is around $167,000, and the effective property tax rate is around 0.60%. Both of these numbers are extremely enticing, but there is a “catch”. The sales tax in Arkansas is rather high, with the combined state and local sales tax almost reaching 10% (9.51%).
Coupled with the fact that the median home income in the state is one of the lowest on the list, at $48,950, means that purchasing a home in the state may not always be in your best interest. But if you are looking to simply boost your tax refund amount, Arkansas is a great place to be. Of course, it all depends on your unique circumstances. If you were to discount the median home income and the sales tax, Arkansas may very well be an ideal state when it comes to property taxes.
The state of Delaware features above-average priced homes, somewhat high living costs, as well as a rather high poverty rate. However, all of these factors are somewhat offset by a rather high median household income of $70,200 and the fact that Delaware does not collect sales tax.
When it comes to property taxes, the effective tax rate is only 0.59%, with an average home value of $332,200. This is almost double that of Arkansas, the previous entrant, meaning that the total annual property tax paid is similarly higher. But there are different types of taxes in the USA, and Delaware only leads in property taxes. Also, there is no denying that Delaware’s median income is the real “kicker” here. While homes might be more expensive, there are more opportunities for higher salaries. Again, you need to look at these factors from your unique standpoint. If you are not bothered by the sales tax and median income does not factor into your calculations, Delaware might lose quite a bit of its luster.
The state of Utah has the highest average home value out of all the states on our list, at a staggering $530,000! Utah also features a high combined local sales rate, as well as a somewhat high gas tax rate. This means that property taxes that are paid on the annual level (based on the average home value) are very high. Why then exactly is Utah one of the best states for property taxes?
While the $ tax amount in Utah is rather high, the property tax rate itself is quite reasonable at 0.56%. Furthermore, the median household income is even higher than that in Delaware. Utah boasts a median household income of around $75,800! This places the beehive state at the #3 spot in our list when it comes to the median income numbers.
If you are looking for a state with extremely low living costs, low home prices, and low tax rates, West Virginia has it all! The cost of living in the state is always within the top 10 best in the entire U.S., and the effective property tax rate is only 0.53%. The average home value in the state is quite low, at around $127,000, meaning that annual taxes paid on typical home values are quite low. West Virginia is the only state on our list that has this number below $1,000, at $673.
However, the combined state/local sales tax rates in West Virginia are as high as 7.46%. This puts a small damper on an otherwise remarkable state. The median income leaves a lot to be desired, as well, at $48,900.
South Carolina has the same tax rate as West Virginia does – 0.53%. However, the average home value in the state is a lot higher (about $262,000), but so is the median household income ($56,200). Coupled with low living costs, these numbers make a strong case for South Carolina. In our property tax relief guide, we mention that some states offer exceptional options to their taxpayers. South Carolina is one of them.
The only problem that SC faces, as is the case with many Southern states, is the growing poverty rate. According to the 2019 U.S. Census report, 13.8% of its residents were below the poverty threshold.
Another state with a rather high annual property taxes paid number ($2,840), Colorado features expensive homes ($546,000 for a typical home), and a very high median household income (around $77,150). The effective property tax rate may be low, at 0.52%, but the fact that property is so expensive almost makes that a non-factor. But with a high median income, and a low poverty rate (9.3%), Colorado is definitely one of the best states to live in when it comes to property taxes as well as the quality of life.
Being a state where there’s no state income tax, Wyoming has an effective property tax rate of 0.51%, a median household income of $65,000, and an average home value of about $300,000. Furthermore, the sales tax is one of the lowest in the country, at only 4%. These numbers contribute to Wyoming’s appeal but are slightly offset by higher living costs than in most of the other states on our list.
The state of Louisiana is in an excellent place when it comes to property taxes. The effective property tax rate is only 0.51%, and the average home value is close to $200,000. But the state has a huge poverty problem, with its second-highest poverty rate of 19%. Only Mississippi had a higher poverty rate than Louisiana. The median household income also leaves something to be desired, at about $51,000.
So far, the lowest effective tax rate was 0.51% (Louisiana, Wyoming). Alabama says “those are rookie numbers”, and sets the effective property tax rate at 0.37%! Coupled with a low average home value (around $190,000), this number means that the annual taxes paid on averagely-priced homes are only about $700! Alabama is also known to be one of the most affordable states overall, being in the top 3 least expensive states to live in. But it is also a state where tax relief scams are quite common. You will want to make sure to avoid IRS tax relief scams if you are looking to purchase a home in Alabama.
But Alabama also struggles with its poverty rate, as 15.5% of its residents live below the poverty threshold.
One of the best states for property taxes – Hawaii
If we were to rank the states purely on the effective property tax rate, Hawaii would take the #1 spot. The effective property tax rate in Hawaii is even lower than in Alabama, at 0.31%! However, the typical home value is more than four times higher, as well! At around $830,000 price tag for a typical home, Hawaii is not a state where everyone can be a homeowner. The median household income is, unsurprisingly, the highest on our list as well, at about $83,100.
Even though Hawaii might be one of the best states for property taxes, the extremely high living costs make it not-so-obvious a choice for prospective property owners. The state of Hawaii has the highest living costs in the entire country.
If you want to learn even more about tax statistics, tax relief options, or the best tax relief companies, browse and explore the Consumer Opinion Guide.