How do property taxes impact homebuyers and sellers?
Property taxes directly influence both homebuyers and sellers in several ways.
“Tax value is an important piece of the affordability of a home,” explains Sam Mansour, a top-rated real estate agent in Washington with more than 20 years of experience. “Oftentimes, when people ask what their mortgage payment is going to be, mortgage officers and other professionals in the industry exclude tax and insurance. Those are two extremely important items in creating or figuring out affordability.”
Mansour provides this example: “If you are purchasing a $500,000 home and your payment is going to be $3,500 — or $3,500 without taxes and insurance — adding taxes and insurance may add up to $700 to the monthly payment.”
For sellers, Mansour says property taxes can affect your home’s marketability. Higher taxes may deter potential buyers, impacting how quickly your home sells.
Which states have the highest property tax?
According to a 2024 WalletHub report, here are the 10 states with the highest real estate property tax rates. Their data includes the District of Columbia, so national rankings are from 51 (the highest) to 1 (the lowest).
States with the highest real estate property tax rates
Rank | State | Tax rate | Median home value | Tax on median home |
51 | New Jersey | 2.33% | $401,400 | $9,345 |
50 | Illinois | 2.11% | $239,100 | $5,055 |
49 | Connecticut | 2.00% | $323,700 | $6,484 |
48 | New Hampshire | 1.89% | $337,100 | $6,372 |
47 | Vermont | 1.78% | $272,400 | $4,859 |
46 | New York | 1.64% | $384,100 | $6,303 |
45 | Texas | 1.63% | $238,000 | $3,872 |
44 | Wisconsin | 1.59% | $231,400 | $3,670 |
43 | Nebraska | 1.54% | $205,600 | $3,167 |
42 | Iowa | 1.49% | $181,600 | $2,703 |
Source: WalletHub; based on effective real-estate tax rates; (*annual median estimates)
Which states have the lowest property tax?
Here are the 10 states with the lowest real estate property tax rates. This list presents 12 states in order to include those that are tied in their ranking positions.
States with the Lowest real estate property tax rates
Rank | State | Tax rate | Median home value | Tax on median home |
1 | Hawaii | 0.27% | $764,800 | $2,054 |
2 | Alabama | 0.39% | $179,400 | $701 |
3 | Colorado | 0.49% | $465,900 | $2,278 |
4 | Nevada | 0.50% | $373,800 | $1,884 |
5 | South Carolina | 0.53% | $216,200 | $1,138 |
6 | Delaware | 0.55% | $305,200 | $1,674 |
6 | Louisiana | 0.55% | $198,300 | $1,087 |
6 | Utah | 0.55% | $408,500 | $2,241 |
6 | West Virginia | 0.55% | $145,800 | $809 |
10 | District of Columbia | 0.56% | $705,000 | $3,957 |
10 | Arizona | 0.56% | $321,400 | $1,786 |
10 | Idaho | 0.56% | $331,600 | $1,872 |
Source: WalletHub; based on effective real-estate tax rates; (*annual median estimates)
What is your state’s real estate tax ranking?
Use the interactive map below to see how your state ranks for real estate taxes. There are no states without property tax.
Mansour says the tax assessment process and rates of increase vary by state. For example, his home state of Washington handles tax bills differently from other states.
“The assessed value in Washington state is assessed and reassessed each and every year. So, each county assessor is responsible for reporting the assessed value of each property once a year, and then the [property owner] will receive that assessed value and will pay taxes based on that.”
As Washington homeowners face inflation and other affordability issues, the Washington property tax process is creating additional headwinds.
“The assessed values in recent years have been going up and up and up and up,” Mansour explains. “So, if somebody purchased a home for $300,000 ten years ago and their assessed value was $3,000 a year, and that property is now worth $1.2 million, then their assessed value is close to $13,000 a year.”
Property value vs. assessed value
Property value refers to the market value of your home, or the amount it would likely sell for under normal market conditions. The assessed value is the value determined by the tax assessor for calculating property taxes, usually a percentage of the market value.
“The assessed value for 2024 is based on the value of 2023,” Mansour explains. “That’s why a lot of times when we look at our assessed value, it is usually lower than the market value because they’re looking backward, and the economy in the market is going upward. However, sometimes the opposite is true. For example, in [the housing crisis of] 2008, 9, or 10 — I was a Realtor then — the market value went down while the assessed value was higher than the market value.”
How are property taxes calculated?
The formula for calculating property taxes typically involves multiplying the assessed value by the mill rate or mill levy. A mill levy is a tax rate expressed in mills per dollar of assessed value, where one mill is equal to one-tenth of a cent, or $1 per $1,000 of assessed value.
The assessed value estimates the market value for your home, based on local real estate market conditions. To determine the assessed value, the assessor considers several factors:
- Comparable sales: What similar properties are selling for under current market conditions.
- Replacement costs: How much it would cost to replace the property.
- Maintenance costs: The ongoing costs to maintain the property.
- Improvements: Any enhancements or renovations completed on the property.
- Income: Any income generated from the property.
- Interest charges: The interest that would be charged to purchase or construct a comparable property.
We’ll provide some examples of how a mill levy equation looks in a moment. But first, here is a closer look at the different methods an assessor might use to estimate the market value of your property.
Methods used to estimate property tax value
Assessors can estimate the market value of a property using three methods. They may choose one method or a combination of the three:
- Sales evaluation method: This method looks at the sale prices of comparable properties in the area. The assessor reviews recent sales data to determine what similar properties have sold for, making adjustments for differences between the properties.
- Cost method: This method estimates the cost to replace the property with a similar one at current prices. It includes the cost of materials, labor, and other expenses related to constructing a new, comparable property, minus depreciation for the age and condition of the existing property.
- Income method: This method is used primarily for income-generating properties like rental homes or commercial buildings. It estimates the value based on the income the property generates. The assessor calculates potential income, subtracts operating expenses, and applies a capitalization rate to determine the property’s value.
Property tax value examples
Let’s consider some examples to illustrate how property taxes are calculated.
Suppose you own a home with a market value of $300,000. If the local mill rate is 7, using the calculation formula, your property’s tax bill would be $2,100. This means that for every $1,000 of assessed value, you owe $7 in property taxes.
If the local mill rate was 10, you would own $10 in tax for every $1,000 of your home’s assessed value, or $3,000.
In short, “1 mill” is equal to $1 in real estate property tax, which is typically levied per $1,000 of your property’s taxable value. You can check your home’s deed to learn the mill rate for your area or contact your local tax assessor’s office.