When you are shopping around to buy or sell property in a new state, you will want to consider how the property taxes might vary between states. Understanding which states have the lowest property tax rates can help property owners expand their assets by optimizing their obligation as a taxpayer. States with the lowest property taxes are more attractive to investors because they will be required to pay less on their property.
Most Americans have a goal of homeownership, but they often fail to consider property taxes when they are shopping for a home. Property taxes help to shape local housing markets by influencing the price of buying or renting homes and apartment buildings in the area. Keep reading to learn more about property taxes and a list of the states with the lowest real estate taxes.
What are property taxes?
Local governments use property taxes to collect money to fund projects such as road construction, schools, maintenance, parks and recreation programs, public transportation, payroll for municipal employees and more. Depending on your local area, you may pay a modest amount in property taxes, or you could have a rate on your tax bill that costs almost as much as your mortgage.
Property taxes can vary from location to location, but the biggest factor that influences your tax rate is your property’s value. All homeowners are required to pay property taxes and there are no states that are exempt from these taxes. If you own a property, you will be responsible for paying the property tax on it. However, there are a few ways you can minimize your overall taxpayer obligation including moving to a state with low property tax.
Property taxes are taken from all property owners to fund numerous important initiatives and services in your local area. These services will affect your daily life including:
- Local government activities
- Fire protection services
- Law enforcement
- Public libraries
- Public pools
- City road work
- Other community and infrastructure projects
How to Calculate Property Tax
There are many different factors that go into calculating your property tax, but you can still get a good estimate by using a simple formula. If you multiple your property’s assessed value by the tax rate in your area, you can come up with an answer that is a good estimate of what you may be paying on your property taxes. However, it is important to note that this may not be entirely accurate to how much you will need to pay on your property taxes.
States with the lowest property taxes are enticing for investors looking to purchase land or homes because it will typically result in paying less in total property taxes. The property value is the total assessement value of your home. You can get an assessed value by looking at comparative properties or calculated by a home assessor. It is important to note that assessed value doesn’t always match the appraised value.
Note: Many states have implemented laws that place limitations on assessed value to a percentage of your appraised value.
To calculate an estimate on your property taxes, you can try out the formula for yourself. Look up the tax rate in your local area and multiply it by your property’s assessed value. You can also take advantage of numerous property tax calculators that can help you find the required information quickly.
The entities that decide what your home values are in your state are local tax assessors. They will look at similar properties in the market and compare recent sales prices to come up with a final determination for your property’s value. Keep reading to learn which states are currently offering the lowest property taxes.
States with the Lowest Property Taxes
Each year the property taxes in each state can change so it is important to check back to see if anything has changed. There are no states that are not required to pay property taxes, but some states do have lower property taxes than others. If you own property, you know how much it can cost to pay your property taxes each year.
If you are considering investing in real estate, you should consider purchasing a property in one of these states with low property tax rates:
Hawaii (0.30%) – The Aloha state may be off mainland United States, but it proudly boasts the lowest effective property tax rate in the country. However, it is important to note that Hawaii has the highest median home value in the nation. Since property tax is calculated using a percentage, you can still end up paying a lot in property tax even though the tax rate is the lowest in the country.
Alabama (0.40%) – Alabama is one of the most affordable states to consider for new and current real estate investors and property owners. Property values are also well below the average across the country so you will pay a very low tax rate in Alabama.
Louisiana (0.52%) – Louisiana is a great state to purchase properly because it has low property value, a low tax rate, and an affordable cost of living with cas only taxed at 20 cents per gallon.
West Virginia (0.55%) – Since West Virginia boasts modest home prices in combination with low effective property taxes, it can be an enticing state to purchase property for many real estate investors.
Wyoming (0.55%) – Wyoming has slightly higher property tax rates than other states, but it can still be a great option for investors because there is no state income tax and there is a minimal 4% state sales tax. This makes Wyoming one of the most affordable states for homeowners and investors.
Note: Although many states may have low property tax rates, the property value in the area also plays a major influence in determining the final yearly tax evaluation. No matter which state you choose, purchasing a higher value property will bring a larger tax bill regardless of the property’s location. You should also consider the typical median income and general cost of living expectations to make the best investment decisions regarding real estate.