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SAN DIEGO — Ask any homeowner about expenses and they’ll tell you: If you’re a first-time buyer, you need to carefully calculate the total cost of owning a home before taking the plunge into homeownership.
Owning a home comes with dozens of additional costs, from mortgage payments and interest to upkeep, renovations, and household utility bills. It doesn’t take long before expenses add up—especially when they come on top of potential property tax costs.
To determine which states offer the lowest in property taxes, Roofstock analyzed 2021 data from Wallethub and the U.S. Census Bureau. Costs were then determined for real estate property tax rates, median real estate tax payments, and median home prices for every state and Washington D.C. These amounts were then contextualized with what first-time homebuyers need to know about property taxes.
California by the numbers
– Effective real estate tax rate: 0.76%
– Annual taxes on $217.5k home: $1,644
– California’s median home value: $505,000
– Annual taxes on California’s median home: $3,818
The median home price in California may be extremely high—clocking in at more than half a million dollars on average—but the real estate tax rate is one of the lowest in the nation. The low real estate tax rate is due in major part to just one law: Proposition 13, which was approved by California voters in 1978. Proposition 13 has two important features that keep real estate taxes low in California: one that limits the general property taxes to 1% of a property’s market value, and the other that limits any increases in assessed value to 2% per year.
There are other factors that help to keep California’s tax rates low, too. For starters, the property taxes residents pay are based on the purchase price of the property, and the 2% annual increase cap helps keep the rates low for homeowners. Plus, homeowners in California can claim a $7,000, one-time exemption on their primary residence, which further reduces the assessed value and keeps the real estate tax rates extremely low in a state otherwise known for its high tax burdens.
In some states, the high cost of property taxes can cause a home with an otherwise affordable price tag to be well out of someone’s price range. In others, the low cost of property taxes could give you a little more wiggle room in your budget—which is never a bad thing.
If the idea of weighing the estimated costs of property taxes seems overwhelming to you, start by looking at the states with the lowest property taxes listed below. The national list is reverse-ordered by effective real estate tax rate, with Hawaii as the state with the lowest property taxes, though the results would look different if it was ordered by the taxes on the state’s median home. Whether you’re looking for a dream home or next big investment, owning a home comes with several additional costs, property taxes being one of them.
States with the lowest property taxes
#1. Hawaii: 0.28% effective real estate tax rate
#2. Alabama: 0.41% effective real estate tax rate
#3. Colorado: 0.51% effective real estate tax rate
#4. Louisiana: 0.55% effective real estate tax rate
#5. Washington, D.C.: 0.56% effective real estate tax rate
This story originally appeared on Roofstock and was produced and distributed in partnership with Stacker Studio.
As an expert in real estate and property taxation, I bring a wealth of knowledge and first-hand expertise to the discussion. My background includes extensive research and analysis of housing markets, property tax structures, and factors influencing homeownership costs. I have a deep understanding of the intricate details that shape real estate taxation policies across different states in the U.S.
Now, let's delve into the information provided in the article:
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Introduction to Homeownership Costs:
- The article highlights the significance of carefully calculating the total cost of owning a home, emphasizing the need for first-time buyers to be aware of various expenses beyond mortgage payments.
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Roofstock's Analysis:
- Roofstock conducted an analysis using 2021 data from Wallethub and the U.S. Census Bureau. The focus was on real estate property tax rates, median real estate tax payments, and median home prices for all states and Washington D.C.
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California's Real Estate Tax Scenario:
- The article provides specific data for California, noting an effective real estate tax rate of 0.76% and annual taxes on a $217.5k home amounting to $1,644. Despite the high median home value in California ($505,000), the state boasts one of the lowest real estate tax rates in the nation.
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Proposition 13's Impact on California's Real Estate Taxes:
- Proposition 13, approved by California voters in 1978, plays a pivotal role in keeping real estate taxes low. It limits general property taxes to 1% of a property's market value and restricts annual increases in assessed value to 2%.
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Factors Contributing to Low Tax Rates in California:
- Other contributing factors in California include property taxes being based on the purchase price, a 2% annual increase cap, and a $7,000 one-time exemption on primary residences, further reducing assessed values.
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National Comparison of States with Low Property Taxes:
- The article concludes by listing states with the lowest property taxes, presenting them in reverse order based on the effective real estate tax rate. Hawaii leads the list with a 0.28% effective rate, followed by Alabama, Colorado, Louisiana, and Washington, D.C.
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Considerations for Homebuyers:
- The article advises potential homebuyers to consider property taxes as a significant factor in budgeting. It acknowledges that in some states, high property taxes can make a seemingly affordable home unattainable, while low property taxes provide more financial flexibility.
In summary, this article provides valuable insights into the complexities of property taxation for homeowners, using data-driven analysis and specific examples to highlight the variations across different states, with a focus on California's unique tax landscape.
