States Without Property Tax: From Lowest to Highest

Property taxes can vary significantly from building to building and of course from state to state. Across the US the average amount households pay each year in real estate tax is $2,400. 

However, as we mentioned already, this number varies significantly, and investors need to be careful when considering investment locations to ensure they don’t get stung by an above-average property tax rate.

In this article, we take a look at the ten states with the lowest property tax and the ten states with the highest property tax.

Understanding Real Estate Taxes

Real estate taxes, also known as real property taxes, are a familiar aspect of property ownership for most Americans. These taxes are imposed on various types of properties and are typically remitted to state and local governments. The revenue generated from real estate taxes plays a pivotal role in funding essential local and state services.

Personal Property Tax: A Distinct Category

However, there's another tax called personal property tax, and it's important not to confuse it with real estate taxes. The primary distinction lies in the nature of the property being taxed.

Personal property encompasses movable items, in contrast to real property, which consists of immovable assets like land and buildings. Personal property can include a wide range of items, such as transportation vehicles (like cars, planes, boats, trailers, or mobile homes), equipment, and other tangible assets.

Real Estate Taxes vs. Personal Property Taxes

The key difference between real estate taxes and personal property taxes is in what they cover. Real estate taxes pertain exclusively to taxes on immovable real property, such as condominiums, houses, or rental properties. These taxes contribute to the local and state coffers, funding various public services.

In contrast, personal property taxes encompass the taxation of tangible and movable personal property. This can encompass a diverse array of items, depending on the jurisdiction. For instance, in some regions, mobile homes may be considered real property rather than personal property, further adding to the complexity.

It's also worth noting that intangible personal property, like investments or bank accounts, typically falls outside the purview of personal property taxes. However, some jurisdictions may impose taxes on specific business-related personal property items while exempting equivalent personal use items.

States Without Property Tax 

Before we kick off, we want to answer the main question, the reason we’re all here. Are there any states without property tax?

Sadly for investors, the answer is no, there are no states without property tax. This is because property tax is a useful way for local governments to fund public services such as schools, fire and police departments, infrastructure and libraries.

There is a caveat to this though. There are some cities in the US that have lower than average property taxes or no property tax at all such as The City of Stafford in Texas.

And just because there are no states without property tax that doesn’t mean all states are created equal when it comes to this tax. Some are definitely better than others when it comes to the percentage of property tax assessed and collected.

Related: Best US Cities to Invest In Rental Properties Today

10 States With The Lowest Property Tax

When assessing the best state for investors in regard to property tax there are a couple of other factors worth considering. These include the average property values and the median household income. Obviously, a 0.5% property tax is better than 1%, however, if the average property is valued at over $1 million then you’re still going to be paying more annually than a state where the average property is significantly cheaper.

1. Louisiana

• 0.18% of assessed home value
• $243 property tax per year based on state median home value
• $54,216 median household income

2. Hawaii

• 0.26% of assessed home value
• $1,324 property tax per year based on state median home value
• $81,711 median household income

3. Alabama

• 0.33% of assessed home value
• $398 property tax per year based on state median home value
• $51,014 median household income

4. Delaware

• 0.43% of assessed home value
• $1,078 property tax per year based on state median home value
• $67,249 median household income

5. District of Columbia

• 0.46% of assessed home value
• $2,057 property tax per year based on state median home value
• $98,620 median household income

6. West Virginia

• 0.49% of assessed home value
• $464 property tax per year based on state median home value
• $44,940 median household income

7. South Carolina

• 0.5% of assessed home value
• $689 property tax per year based on state median home value
• $52,001 median household income

8. Arkansas

• 0.52% of assessed home value
• $532 property tax per year based on state median home value
• $48,177 median household income

9. Mississippi

• 0.52% of assessed home value
• $508 property tax per year based on state median home value
• $45,925 median household income

10. New Mexico

• 0.55% of assessed home value
• $880 property tax per year based on state median home value
• $52,032 median household income

Source: Business Insider  

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10 States With The Highest Property Tax

On the opposite end of the spectrum, the following ten states have the highest property tax rates in the US.

1. New Jersey

• 1.89% of assessed home value
• $6,579 property tax per year based on state median home value
• $88,343 median household income

2. New Hampshire

• 1.86% of assessed home value
• $4,636 property tax per year based on state median home value
• $73,159 median household income

3. Texas

• 1.81% of assessed home value
• $2,275 property tax per year based on state median home value
• $62,353 median household income

4. Nebraska

• 1.76% of assessed home value
• $2,164 property tax per year based on state median home value
• $59,730 median household income

5. Wisconsin

• 1.76% of assessed home value
• $3,007 property tax per year based on state median home value
• $62,494 median household income

6. Illinois

• 1.73% of assessed home value
• $3,507 property tax per year based on state median home value
• $68,578 median household income

7. Connecticut

• 1.63% of assessed home value
• $4,738 property tax per year based on state median home value
• $85,993 median household income

8. Michigan

• 1.62% of assessed home value
• $2,145 property tax per year based on state median home value
• $55,244 median household income

9. Vermont

• 1.59% of assessed home value
• $3,444 property tax per year based on state median home value
• $62,088 median household income

10. North Dakota

• 1.42% of assessed home value
• $1,658 property tax per year based on state median home value
• $62,081 median household income

Source: Business Insider   

Note: The property taxes listed above are effective averages for some states. States such as Texas have no mandated statewide property tax, instead allowing localities to determine their own property tax rates. It is advised you do independent research and talk to a qualified financial advisor or CPA to determine the exact property tax rates on a state, county, and city level before making any purchasing decisions.

How Are Real Estate Taxes Calculated?

Property taxes may be calculated differently depending on the exact location and municipality of the property. However, they generally follow the same basic rules.

Step 1: Property Assessment

As regularly as once a year, though often less frequently depending on state and local tax law, the property will be assessed. Assessors will usually use one or a combination of the following three methods to determine the accurate market value of the property.

• Comparing the property to similar properties that have been sold recently with adjustments made should the property have variables that make it more or less valuable.
• The cost method, which uses the replacement cost of a property if it were rebuilt from the ground up. This method will factory in depreciation. 
• The income method, which is used for commercial and business premises and is based on the net income the owner would receive if the property were rented. 

Step 2: Property Tax Calculation

Once the ‘market value’ has been assessed, the property assessor will apply the state property tax rate to the value to calculate the property tax bill. 

Eg. if the property’s assessed value is $200,000 and the state tax rate is 1.5% then the property tax would be calculated at 200,000 x 1.5% = $3,000

They may also use a “mill” rate. A "mill" is equal to $1 for every $1,000 of assessed property value.

Do Investors Pay More Property Tax Than Owner-Occupiers?

This varies from place to place, but in short, generally speaking, investors will pay more than owner-occupiers. This is because the local government may assess rental properties as having a higher value than owner-occupied properties. It is an income-generating asset and as such more valuable than a non-income-producing asset.

This can come as a bit of a surprise, especially to newer investors who expected to pay the same property tax rates as everyone else, but then suddenly find they’re hit with an unexpected property tax bill and that their actual cash flow is nowhere near as high as their Pro-forma cash flow forecast. 

As part of your due diligence process, real estate investors should always contact the local tax assessor’s office to learn if the property tax amount will change and by how much.  

Is There A Difference Between Real Estate Taxes And Property Taxes?

When it comes to financial matters, clarity is key. You may have heard the terms "real estate taxes" and "property taxes" used interchangeably, and generally they are one and the same.

However, while "property taxes" is often used as a catch-all term, it's essential to understand that within this category, there are distinctions to be made. This includes real estate taxes (the most common meaning applied to the general term of property tax) apply to immovable assets like homes and condos, as well as personal property tax which covers a wide range of movable assets.

This clarity is vital for property owners and taxpayers to ensure they meet their financial obligations accurately.

5 Ways You Can Minimize Your Real Estate Tax Bill

While there are no states without property tax there are a few things that real estate investors can do to help keep the assessed value of their property down. 

1. Ensure the local assessor has all of the correct details regarding the property. Such as, lot size, square footage, number of bedrooms and bathrooms, original construction date, property upgrades etc.
2. Avoid making structural changes that might increase the value of the property such as converting the attic or adding a conservatory. (Unless you think such upgrades will benefit you financially in the long term even with an increase in real estate tax).
3. Limit the curb appeal of your property. Nicer-looking properties may be assessed as having a higher value.
4. Talk to neighbours and make sure your property value is assessed in line with theirs. 
5. If you think there are items that will reduce the perceived value of the home you can even walk the assessor through the property and point these aspects out.

Real Estate Tax And Rental Property Deductible Expenses

The above strategies may or may not yield results in reducing your annual property taxes. Ultimately, if you have a great investment property, it’s going to be hard to hide the fact. Thankfully, however, there are other ways you can mitigate your end-of-year tax bill as many of the operating expenses for running your rental property are deductible from your rental income.

In order to make the most of your rental property deductions, you need to ensure you keep accurate records of all expenses over the course of the year. The easiest way to do this is with property management and accounting software such as Landlord Studio.

Landlord Studio is free for your first three properties and is designed to make your rental property income and expense tracking as easy as possible. Digitize receipts on the go, sync your bank accounts and reconcile transactions in real-time, and easily generate any of over 15 accountant-approved reports whenever you need them.

Common tax write-offs that real estate investor can use:

• Mortgage and credit card interest
• Property insurance
• Maintenance and repairs
• Travel expenses
• Professional fees such as property management or leasing fees
• Legal and tax preparation fees
• Property taxes 

Save time, reduce your tax bill, and increase your ROI with real estate accounting software designed for you. Create your free Landlord Studio account today.

Bonus: Depreciation

Property depreciation is a major end of year deductible. According to the IRS, rental property investors can deduct the value of a residential real estate asset (excluding the land value) over a period of 27.5 years.

This means if you have a property valued at $200,000, with the land valued at $50,000, you would be able to deduct $150,000 off your taxes over a period of 27.5 years. This equals $5,454 per year.

It’s important to note that some of this depreciated amount will be reclaimed by the IRS through a process of depreciation recapture when you sell the property.

States Without Property Tax: Final Words

While there are no states without property tax (real estate tax), there are ways to make sure you’re not surprised by your end-of-year bill, and to ensure your rental portfolio remains cash flow positive.

Real estate investors who underestimate the potential property taxes for investments are in for a nasty surprise. While property taxation methods vary from place to place, the rule of thumb is that property taxes will go up for investment real estate as income-generating assets are seen as more valuable than owner-occupied properties.

In order to run a profitable investment portfolio, you need to first analyze the property and calculate key metrics such as cap rate, cash flow, net operating income, IRR etc. And then you need to ensure you have the systems in place to accurately track all of your income and expenses accurately throughout the year so that when it comes to tax time you can make the most of your deductibles and minimize your tax bill. 

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