Zero property tax? Sounds like a utopia for every property owner out there.
But does such a model really exist? Are there actually any states with no property tax in 2020?
Long story short – no.
But even though there are no states with no property tax, you should know that some states offer much better conditions than others. In fact, a total of 8 US states have an effective real estate tax rate lower than 0.6%.
Keep on reading to discover the second best thing to zero property tax, as well as which states you should avoid due to very high property tax rates.
But before that, let’s just briefly examine the overall property tax situation.
2020 property tax overview
Whether you are a property owner or real estate investor looking to build a steady rental income, property taxes are something that concerns us all. Still, depending on where your home is situated, this can be a more or less significant financial burden for your budget.
That’s right, the amount you pay depends on the state you’re located in.
Property tax is imposed by the jurisdiction in which the property is situated and the property owner is obliged to pay it annually. The exact tax amount is determined by multiplying the current market value of the property by the property tax rate.
According to the U.S. Census Bureau, an average US household spends $2,375 per year on property taxes. Furthermore, the data from the National Tax Lien Association shows that over $14 billion in property taxes remain unpaid every year, which shows that not all households can easily pay it.
Even though property tax is most commonly associated with real estate, some states also impose taxes on vehicles and other assets. So, when talking about property tax in terms of vehicle tax, there are 24 states with no vehicle property tax:
- Hawaii, District of Columbia, Delaware, Utah, Tennessee, Idaho, New Mexico, Oklahoma, Georgia, Florida, North Dakota, Washington, Oregon, Maryland, Alaska, South Dakota, Ohio, Pennsylvania, New York, Texas, Vermont, Wisconsin, Illinois, New Jersey
Other than this, whatever state you’re located in, you’ll have to pay a certain amount of real estate property tax.
So, definitely no states with no property tax at all?
But let’s take a closer look at the second-best thing – 0.27% tax rate doesn’t sound so horrible after all, does it?
In order to compare property taxes across all 50 states (including the District of Colombia), researchers used the U.S. Census Bureau data to calculate property tax rates. They divided the median real estate tax payment by the median home price for each of the states. The results were then used to determine the amount of property tax paid on a house worth $204,900 (this was the median value for an average US home as of 2018).
Here is the list of 8 most desirable US states when it comes to paying property taxes.
8 states with the lowest property tax rates
- Effective property tax rate: 0.27%
- State median home value: $587,700
- Annual taxes on home priced at state median value: $1,607
Even though Hawaii has the lowest property tax rate of all the states, it also has the highest median home value so tread lightly. If you were to own a $205 home in Hawaii, you would be expected to pay only $560 in annual taxes. But the fact is that home prices here can go way up.
- Effective property tax rate: 0.42%
- State median home value: $137,200
- Annual taxes on home priced at state median value: $572
With the second-lowest tax rate and home prices well-below the median home price for the entire country ($204,900), Alabama is as close as it gets to fulfilling our myth about states with no property tax.
- Effective property tax rate: 0.53%
- State median home value: $157,800
- Annual taxes on home priced at state median value: $840
Louisiana is yet another affordable state for homeowners. Similarly to Alabama, it has a low property tax rate and median home prices below the country average.
- Effective property tax rate: 0.53%
- State median home value: $313,600
- Annual taxes on home priced at state median value: $1,647
Colorado has exactly the same property tax rate as Lousiana but almost double the median home value, which makes it a less affordable opportunity.
5. District of Columbia
- Effective property tax rate: 0.55%
- State median home value: $568,400
- Annual taxes on home priced at state median value: $3,113
A low tax rate but one of the highest home values don’t really make the District of Columbia a homeowner’s heaven.
- Effective property tax rate: 0.56%
- State median home value: $244,700
- Annual taxes on home priced at state median value: $1,377
Even though Delaware has a relatively low tax rate, the fact that the median home value in this state is above the national average doesn’t make it as appealing as some other states on the list.
7. South Carolina
- Effective property tax rate: 0.57%
- State median home value: $154,800
- Annual taxes on home priced at state median value: $887
With median home value well below the national median, South Carolina is yet another state where you can hope to pay less than $1,000 in property taxes.
8. West Virginia
- Effective property tax rate: 0.59%
- State median home value: $115,000
- Annual taxes on home priced at state median value: $678
Last but not least (almost the least, actually, when it comes to the amount of property tax you can expect to pay), West Virginia is the state with the lowest state median home value on our list, which makes it one of the most affordable states to own a home in.
Since there are actually no states with no property tax, the ones shared above might be your best chance to spend as little as possible on taxes.
When it comes to the states with the highest property tax rate, be cautious if you’re thinking about dealing with property in the following states:
- New Jersey – 2.47%
- Illinois- 2.30%
- New Hampshire – 2.20%
- Connecticut – 2.11%
- Wisconsin – 1.91%
- Vermont – 1.88%
- Texas- 1.81%
- Nebraska – 1.77%
As you could see from the examples above, a smaller tax rate doesn’t necessarily mean lower property taxes, as some states have a very high median home value. So, make sure to take this into account as well when deciding on the most cost-effective state for your next home or real estate investment.