Property tax is one of the costs that can vary a lot in the United States. It can run from an extreme high to an extreme low and make a huge difference on your monthly house payment. But do you know how your tax level compares with the rest of the country?
Property taxes can take a big bite out of your bank account every month so it’s good to know how much of a bite when you are shopping around for a home. Daren Blomquist of research firm ATTOM Data Solutions said, “Property taxes are one of those potentially hidden costs that folks may not think about.”
His company recently released a report on property taxes. Researchers dug into a database of information on 84 million single-family homes across the U.S. and came up with highs and lows for all 50 states and 217 cities nationwide.
It found that some people pay as much as three percent of the assessed value of their properties while others pay less than one-half percent. It also shows that property taxes are typically less on investment homes than owner-occupied homes.
The research shows the average for the nation in 2016 was $3,296 per home. That’s a tax rate of 1.15 percent and a grand total of $277.7 billion dollars in property taxes for the entire U.S.
Lowest Property Tax Rates
The place with the lowest property taxes may surprise you. According to ATTOM research, Hawaii had the lowest property taxes in the nation, at just 0.32 percent. It may seem counter-intuitive that Hawaiians pay such low property taxes since they live on an island, and prices generally tend to be higher for the island lifestyle.
Back on the mainland, there are a few other states that are close behind Hawaii. ATTOM research shows that Alabama, Colorado, Tennessee, and Delaware were all around one-half percent. Creeping up a little higher on the tax ladder but still well below the one percent level are West Virginia, South Carolina, Nevada, Utah, and Arkansas.
If you’d rather think in terms of “cities” or “metro areas” than “states”, the cities with the lowest property tax rates were Honolulu; Montgomery, Alabama; Tuscaloosa, Alabama; Florence, South Carolina; and Colorado Springs, Colorado. The tax rates for those cities ranged from 0.32 percent to 0.44 percent.
Highest Property Tax Rates
At the other end of the spectrum are the people who pay the highest property taxes in the nation and those people own homes in New Jersey. The average effective tax rate there is 2.31 percent. Illinois, Texas, New Hampshire, and Vermont are also higher than the 2 percent mark.
Other states that are not much less than those are Connecticut, Pennsylvania, New York, Ohio, and Rhode Island. It appears that most of the high property tax states are in the Northeast.
The property tax rate is even higher for some cities. The folks in Binghamton, New York pay 3.10 percent on their properties. Rochester, New York; Rockford, Illinois; Atlantic City, New Jersey; and Syracuse, New York are also in that upper tax bracket.
Owner Occupied vs. Investment
The study also found that the annual average tax paid for investment properties was $2,437 compared to $3,658 for owner-occupied homes. That’s a 1.03 percent rate for investors and a 1.21 percent rate for homeowners. That’s because investors tend to own properties with lower values.
Blomquist offered an example in a blog by California’s Capital Public Radio. He said, “The average value of owner-occupied properties in California is over $642,000 while the average value of investment properties in California is $536,000.” He said, “Investors on average are paying $4,100 in annual property taxes compared to about $4,900 for owner-occupants.”
The difference is somewhat negligible for owner-occupants versus investors. But the difference between the high and low states can be enormous.
Hawaii News Now cited a comparison between Hawaii and New Jersey. According to Gavin Thornton of Hawaii Appleseed Center for Law and Economic Justice, property taxes on a $1 million home in Hawaii would on be around $3,200 a year. In New Jersey, property taxes on a $1 million home would be about $24,000. A few percentage points can make a big difference.
Hawaii’s low property tax rate has been a big draw for out-of-town buyers and a topic of debate among Hawaiian lawmakers. They feel that non-residents who are investing in Hawaiian real estate are putting a squeeze on inventory and driving up prices. Hawaii News Now says about one-fourth of all housing on the Hawaiian Islands is owned by people who don’t live there.
In Honolulu, there’s been a court battle over an ordinance that taxes homeowners who don’t live in their homes full time at a higher rate. The ordinance was actually passed in 2013 but about 20 homeowners sued. According to the Star Advertiser, they fall under Honolulu’s Residential A classification and are taxed at a rate of $6 per $1,000 of assessed value instead of the standard rate of $3.50 per $1,000. It appears that a judge ruled last December , that the city’s ordinance could remain in effect.
The lesson here is to take property tax into consideration when you are buying a home or investment property, and then find out if there are any particular rules you need to know about like the ones in Honolulu. The other lesson is that whatever property taxes are being levied right now, are always subject to change.