One of the essential steps in purchasing a property is knowing about the state property taxes. There are 51 states in the USA (50 states and Washington D.C. as the federal district), and each state has different taxations.
According to the U.S. Census Bureau, an average American spends $2,471 on property taxes for their homes each financial year.
As a foreign national, you need to have a great understanding of the state’s taxation policies where you will buy your property.
What Is Property Tax?
Property taxes or real estate taxes, in simple terms, mean the taxes paid by the legal owner of the property to the state or the local authorities. The amount of tax that one pays varies depending on the value of the property purchased and the location. Property tax is one of the major tax categories for various states. Local governments use these earnings to develop education, infrastructure, transportation, etc.
Another term to remember is the effective property tax, which means the percentage of the property’s value paid in property tax during a financial year. Property tax is just one constituent of the dollars earned by the states; other major tax categories include income taxes, sales tax, and excise taxes.
How to Calculate the Effective Property Tax Rates?
It is a simple mathematical formula: divide the annual property tax you have paid by the property’s assessed value and multiply it by 100. The percentage helps us compare property taxes in states by providing the same standardized number.
Example- If the market value of your property is $217,500 and the annual property tax that you paid is $2,471, then the effective property tax rate would be 1.13%.
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How is the Property Value Assessed?
Being a foreign national, it is always confusing how the property value is assessed as it differs from country to country. In the USA, a municipal property accessor takes up the work of calculating your property’s value. Various factors, like market value and the assessment rate, are involved while assessing the property, which generally remains uniform across a tax jurisdiction.
A dip in property tax can be observed when the local government’s budget decreases. Additionally, the tax burden is reduced when new construction starts on a vacant plot, as it would spread the taxes. On the other hand, you may see your tax bill increase if you add a second floor to your home.
You typically pay three months of property tax in advance upon closing the deal. That means you pay a portion of property tax before moving to your new house.
If the deal is done in the middle of a financial year, the seller will pay the prorated amount for the property taxes they were responsible for that year before closing the agreement.
Example:If the deal closed on the 1st of July, the seller will pay the taxes for the first six months of the year and the rest by the purchaser.
Top 5 States With the Highest Property Taxes
There are zero states with no property tax in the USA. This section would highlight the top-5 states with the highest property taxes. The annual property tax bill mentioned here is based on the median home value of $300,000.
New Jersey
Annual property tax: $7,470
New Jersey has a very high property value, and it reflects on the property tax bill as well. With approximately 2.5% of the property value being taxed, it has become one of the most expensive states to live in the USA. However, almost 60% of the fund earned in property taxes is used to develop the state’s education sector.
Illinois
Annual property tax: $6,810
Illinois stands second in terms of the tax collected annually. However, It is an expensive state with an effective property tax of 2.21%.
New Hampshire
Annual property tax: $6,540
New Hampshire relies heavily on real estate taxes, as they do not take income and sales tax. Property taxes entirely fund the local government. So, while the residents pay higher effective tax rates, they are likely to have better services and infrastructure.
Connecticut
Annual property tax: $6,420
The revenue of the local government of Connecticut depends heavily on real estate taxes. A large portion of the revenue is spent on developing schools. However, unlike New York and Massachusetts (Neighbouring States), Connecticut does not have any cap on the property tax rate.
Vermont
Annual property tax: $5,700
With an effective property tax rate of 1.90%, the local government earns good revenue through property taxes. The provincial government has heavily invested in the education sector and has seen promising results. Its students consistently rank among the highest performing in the country.
Top 5 States With the Lowest Property Taxes
The United States of America is considered one of the most expensive countries to live in. The following list of states doesn’t break your bank for paying taxes. The annual property tax bill mentioned here is based on the median home value of $300,000.
Hawaii
Yearly property tax: $840
This might be surprising for quite a few. Yes, Hawaii is the most expensive state in the USA, but they charge the least real estate taxes. Most of the local government’s revenue is from tourists that visit this state.
In Alabama, property taxes and property rates are on the lesser side. The median home value of this state is much lower than the nation’s value, making it an affordable option for foreign buyers.
Colorado
Annual Property tax: $1,530
The effective property tax is meager in Colorado, but the property prices are sky-high. As per the report submitted by the Colorado Association of Realtors, in February 2021, the median sales price for single-family homes in the state rose by 10.2%.
Louisiana
Annual Property Tax: $1,650
Like other southern states, Louisiana has low tax rates and property prices. It also has other perks like the least gas tax rates in the country.
District Of Colombia
Annual Property Tax: $1,680
Washington D.C isn’t a state, but it still has its property tax policies. However, the cost of living in Washington D.C is very high. Property prices reach new highs often.
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Real-Estate Property Tax Rates by State
Rank(1=Lowest)
State
Effective Property Tax Rates
Annual Taxes on $300K Home
1
Hawaii
0.28%
$840
2
Alabama
0.41%
$1,230
3
Colorado
0.51%
$1,530
4
Louisiana
0.55%
$1,650
5
District of Columbia
0.56%
$1,680
6
South Carolina
0.57%
$1,710
7
Delaware
0.57%
$1,710
8
West Virginia
0.58%
$1,740
9
Nevada
0.60%
$1,800
10
Wyoming
0.61%
$1,830
11
Arkansas
0.62%
$1,860
12
Utah
0.63%
$1,890
13
Arizona
0.66%
$1,980
14
Idaho
0.69%
$2,070
15
Tennessee
0.71%
$2,130
16
California
0.76%
$2,280
17
New Mexico
0.80%
$2,400
18
Mississippi
0.81%
$2,430
19
Virginia
0.82%
$2,460
20
Montana
0.84%
$2,520
21
North Carolina
0.84%
$2,520
22
Indiana
0.85%
$2,550
23
Kentucky
0.86%
$2,580
24
Florida
0.89%
$2,670
25
Oklahoma
0.90%
$2,700
26
Georgia
0.92%
$2,760
27
Missouri
0.97%
$2,910
28
Oregon
0.97%
$2,910
29
North Dakota
0.98%
$2,940
30
Washington
0.98%
$2,940
31
Maryland
1.09%
$3,270
32
Minnesota
1.12%
$3,360
33
Alaska
1.19%
$3,570
34
Massachusetts
1.23%
$3,690
35
South Dakota
1.31%
$3,930
36
Maine
1.36%
$4,080
37
Kansas
1.41%
$4,230
38
Michigan
1.54%
$4,620
39
Ohio
1.56%
$4,680
40
Iowa
1.57%
$4,710
41
Pennsylvania
1.58%
$4,740
42
Rhode Island
1.63%
$4,890
43
New York
1.72%
$5,160
44
Nebraska
1.73%
$5,190
45
Texas
1.80%
$5,400
46
Wisconsin
1.85%
$5,550
47
Vermont
1.90%
$5,700
48
Connecticut
2.14%
$6,420
49
New Hampshire
2.18%
$6,540
50
Illinois
2.27%
$6,810
51
New Jersey
2.49%
$7,470
Top Foreign Buyers of U.S. Real Estate in 2022
Canada emerged as the top country for purchasing property in the USA, accounting for 8% of transactions done from April 2020 to March 2021. Mexico stands second with a 7% market share. The third most prominent country to invest in the U.S. real estate is China, the top country since 2015 but fell to 6%. India and the United Kingdom stand at 4th and 5th respectively, with a 4% share in the real estate market.
The following list would highlight popular destinations and their effective property tax rates for each country:
Top Destinations for Canadian Citizens in the USA
Florida (0.86%)
Arizona (0.60%)
California (0.70%)
Ohio (1.52%)
New York (1.30%)
Ultimate guide for Canadians buying houses in the USA
Top Destinations for Mexican Citizens in the USA
Texas (1.60%)
California (0.70%)
Colorado (0.52%)
Arizona (0.60%)
North Carolina (0.78%)
Ultimate guide for Mexicans buying houses in the USA
Top Destinations for Chinese Citizens in the USA
California (0.70%)
Georgia (0.87%)
New York (1.30%)
Michigan (1.31%)
Tennessee (0.63%)
Ultimate guide for China (and Hong Kong) citizens buying property in the USA
Top Destinations for Indian Citizens in the USA
California (0.70%)
Texas (1.60%)
Florida (0.86%)
Missouri (0.96%)
Maryland (1.01%)
Ultimate guide for Indians buying houses in the USA
Ultimate guide for UK Citizens buying houses in the USA
How to Cut Down on Property Taxes?
This is the most critical part of property taxes. As a foreign national, you must be very anxious about saving dollars, and lowering taxation on your property is an excellent way to curtail losses. The following rundown is a few strategies to reduce property taxes.
Filing a Homestead exemption
A homestead exemption would cover the property owner from paying a specific dollar amount or a percentage of the property’s value. But, as the name suggests, it applies only to the owner’s primary residence and not to the other investments.
It varies depending upon the state. Some states set a dollar limit, while others reduce a home’s value percentage.
Applying for Property Tax exemptions
Some states and local governments provide tax exemptions for certain sections of society. This would heavily reduce the taxation part for the qualifiers.
A few class homeowners who are eligible for tax exemptions are senior citizens. Some states exempt those who have reached a particular age, but those with a good income level and residency situation may not qualify. If you are disabled, you may be eligible for exemptions. Again it varies heavily from state to state. And finally, the members of the armed forces or veterans get property tax exemptions.
Who qualifies for tax exemptions?
Senior Citizens
People with disabilities
Members of the armed forces or veterans
Frequently Asked Questions (FAQs)
Do foreigners pay property taxes in the USA?
Yes, foreigners need to pay property taxes. It’s the same procedure even for a foreign national.
Does each state have the same property tax rates?
No, each state has its rates, and local governments decide upon it.
About the author:
Amresh Singh is the founder & CEO of HomeAbroad and has an extensive 12+ years of experience in the financial services and mortgage industry - building business development and product strategy and leading customer strategyin the financial services industry domain.
Prior to co-founding HomeAbroad, Amresh has worked for one ofread more...
A non-resident alien is perfectly free to own U.S. real estate. From a tax standpoint, there are no income tax prohibitions to ownership of U.S. real estate by a foreign individual.
An exemption of $60,000 is available against the value of assets includable in the US taxable estate of an individual who was not US domiciled. In addition to the Federal estate and gift tax, there may be additional state estate and gift taxes.
If you are a nonresident alien, generally you will not have to pay U.S. capital gains tax on your investment earnings. If you are a resident alien, generally, you will be subject to the same capital gains tax as U.S. citizens. Consult with a tax advisor for any assistance you may need. Internal Revenue Service.
Unfortunately, there are no states without a property tax. Property taxes remain a significant contributor to overall state income. Tax funds are used to operate and maintain essential government services like law enforcement, infrastructure, education, transportation, parks, water and sewer service improvements.
Nonresident aliens are generally subject to U.S. income tax only on their U.S. source income. They are subject to two different tax rates, one for effectively connected income, and one for fixed or determinable, annual, or periodic (FDAP) income.
Individuals classified as resident aliens are taxed on their worldwide income derived from any source. Tax rates are graduated and income is determined in the same manner as for US citizens. Various elections may be available in the first year of residency to reduce the US tax liability.
The answer is, the non-U.S. citizen spouse can inherit property in the manner as a citizen. However, under federal estate tax rules, a surviving spouse who is not a U.S. citizen must pay taxes on the inherited amount. The unlimited marital deduction rule does not apply!
Typically, you can be exempt from withholding tax only if two things are true: You got a refund of all your federal income tax withheld last year because you had no tax liability. You expect the same thing to happen this year. Internal Revenue Service.
Yes, you must report foreign properties on your U.S. tax return just like you would report any owned U.S. property. To do that, you first need to know what type of ownership you have because it affects what tax forms you must file.
Yes, it is possible for a non-permanent resident to buy a house in the United States. Mortgage approval odds generally depend on the lender, type of mortgage, income status and whether the non-permanent resident can prove their intent for long-term residency.
When you sell your principal residence, you are eligible for a gain exclusion of $250,000 USD, or $500,000 USD for married principal owners. If you don't qualify for the gain exclusion, any gain will be considered foreign income and thus eligible for the Foreign Tax Credit.
All of the data below comes from the Census Bureau's 2021 1-year American Community Survey (ACS) Estimates. Hawaii has the lowest property tax rate in the U.S. at 0.27%. The Aloha state has a home median value of $722,500.
MoneyGeek's analysis found that Wyoming is the most tax-friendly state in America, followed by Nevada, Tennessee, Florida and Alaska. States that received a grade of A all share something in common: no state income tax. Washington and South Dakota — which both received a B — also have no state income tax.
Refund Locations: Both US Citizens and non-US citizens can claim tax refunds at all major international airport terminals, they would have a Tax refund desk. Check the airport for the details on the terminal. Also, if you are a non-US citizen, then you can even claim tax refunds at certain mall locations in the state.
The United States Government does not refund sales tax to foreign visitors. Sales tax charged in the United States is paid to individual states, not the Federal government - the same way that Value Added Tax (VAT) is paid in many countries.
The most convenient way to maintain a functional U.S. address while living abroad is to use a virtual mailbox service that you can activate online. This service scans, holds, and offers mail forwarding services for a few dollars per month.
Citizens. Nonresident aliens, in general, are also liable for Social Security/Medicare Taxes on wages paid to them for services performed by them in the United States, with certain exceptions based on their nonimmigrant status.
The IRS allows you to give $16,000 (for 2022) annually to anyone you like, tax-free. If you're married, you and your spouse can each give $16,000 (for 2022). However, if the value of the gift exceeds the annual exclusion amount, you, as the donor, must file a gift tax return (Form 709) to report the gift.
Unlike a spouse, an adult child generally has no legally protected right to inherit a deceased parent's property under state intestate succession laws. Some states, like Florida, do offer some protection to minor children. Most states do protect adult and minor children from being unintentionally omitted from a will.
One of the most common questions we get from our foreign clients is whether buying an American property will give them the legal right to live in the United States. Unfortunately, our first answer is always no. Just purchasing U.S. real estate does not automatically set you on the path toward citizenship.
There are a few methods that you can use to reduce your taxable income. These include contributing to an employee contribution plan, such as a 401(k), contributing to a health savings account (HSA) or a flexible spending account (FSA), and contributing to a traditional IRA.
There are two types of exemptions-personal and dependency. Each exemption reduces the income subject to tax. The amount by which the income subject to tax is reduced for the taxpayer, spouse, and each dependent.
Anyone who receives a gift or bequest worth more than $100,000 (as adjusted for inflation) from someone who isn't a citizen or resident of the United States must file Form 3520 with the IRS by April 15th of the following year.
Each individual has a $11.7 million lifetime exemption ($23.4M combined for married couples) before anyone would owe federal tax on a gift or inheritance. In other words, you could gift your son or daughter $10 million dollars today, and no one would owe any federal gift tax on that amount.
The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $17,000 on this form. This is how the IRS will generally become aware of a gift.
Through FATCA, the IRS receives account numbers, balances, names, addresses, and identification numbers of account holders. Americans with foreign accounts must also submit Form 8938 to the IRS in addition to the largely redundant FBAR form.
If you don't disclose your offshore accounts, you may be caught through an IRS audit and your foreign accounts may be frozen. The IRS may also impose penalties for failure to comply with offshore account disclosures.
Anyone may buy and own property in the United States, regardless of citizenship. There are no laws or restrictions that prevent an individual of any foreign citizenship from owning or buying a home in the U.S.
While foreigners can buy property in the US, the easiest way to purchase your home if you are a foreigner is to pay the full price in cash. If you need financing (a mortgage), you will have to meet certain financing requirements.
Yes, you can obtain a green card through real estate investment in the United States. Although buying a real estate property will not directly help get a green card in the U.S., there are some ways to get a green card by investing in real estate. One of the preferable ways is through the EB-5 Investor Program.
But if you live in more than one home, the IRS determines your primary residence by: Where you spend the most time. Your legal address listed for tax returns, with the USPS, on your driver's license and on your voter registration card.
Legally, you can have multiple residences in multiple states, but only one domicile. You must be physically in the same state as your domicile most of the year, and able to prove the domicile is your principal residence, “true home” or “place you return to.”
If you own and live in just one home, then that property is your main home. If you own or live in more than one home, then you must apply a "facts and circ*mstances" test to determine which property is your main home. While the most important factor is where you spend the most time, other factors are relevant as well.
Which Are the Tax-Free States? As of 2022, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the only states that do not levy a state income tax. Note that Washington does levy a state capital gains tax on certain high earners.
As of 2023, eight states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — do not levy a state income tax. A ninth state, New Hampshire, does not tax earned income, but it does impose a 4% tax on dividends and interest. This is set to expire in 2027.
“Property taxes in Texas are so high because that's the price we pay for not having a personal income tax in this state,” Craymer said. State tax systems are usually looked at as a three-legged stool — one leg is property tax, the second leg is sales tax, and the third leg is the personal income tax.
If you own property in Florida, that property is assessed annually by the county property appraiser. This assessment determines the amount of ad valorem taxes owed each year on your property. Ad valorem or property taxes are collected annually by the county tax collector.
What Are the Average Property Tax Rates in Florida? According to the Tax Foundation, Florida ranks No. 26 when it comes to property taxes paid as a percentage of housing value, with an effective property tax rate of 0.91%. But remember, not everyone in Florida has the same property tax rate.
Fortunately, there are some states that don't charge taxes on retirement income of any kind: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.
1. Alaska. Alaska is the most tax-friendly state for retirees because it has no state income tax or tax on Social Security. And its sales tax rate is the fourth lowest on our list - fifth lowest in the U.S. But keep this in mind: The cost of living in Alaska is higher than in most states.
It is entirely possible to purchase a home as a non-U.S. citizen — whether you're a foreign national or a permanent or a temporary resident. There are no limitations on the type of property that can be purchased or how the property is used.
Yes. Because the US has no citizenship requirement for real estate sales, non-US citizens can buy property in the US. In fact, foreigners can even qualify for a mortgage if they meet certain requirements. However, foreign property owners do face a more challenging tax situation than US citizens.
Currently, the federal government does not restrict foreign ownership of U.S. agricultural land, but the U.S. Department of Agriculture does collect reports of such acquisitions.
Highlights: Foreign Investment US Real Estate Statistics
From April 2020 to March 2021, investors from outside the United States bought 107,000 properties worth $54.4 billion in the United States. Foreign-born individuals make up 14.25 percent of the population in the country's 50 largest metros, on average.
Yes, you can obtain a green card through real estate investment in the United States. Although buying a real estate property will not directly help get a green card in the U.S., there are some ways to get a green card by investing in real estate. One of the preferable ways is through the EB-5 Investor Program.
Owning property in the US does not grant any right of residency. If you get a US B1/B2 visa in your passport, whatever your nationality, CBP will ordinarily allow a maximum stay of six months, and no working or studying.
A landlord cannot deny your rental application based on your country of origin, religious status, or age. Processes and contracts don't tend to change whether you're an immigrant or a US citizen.
Essentially, investing in a business or buying a property in the U.S. could give you permanent residency. Of course, you have to fulfill the EB-5 program requirements first, like investing at least $800,000 or $1,050,000, depending on the location. As well as create at least 10 full-time jobs.
Canadian investors lead this pack, by a long shot, with nearly 9.4 million acres of U.S. land — more acreage than 44 of the top 50 foreign landowners combined, according to the report. (These people own the most land in America.)
Buying a property in the US does not give you residency. To live in the US you'll need an appropriate visa or residence status which must be applied for separately to the house purchase process.
The 2022 Land Report 100, compiled each year by The Land Report magazine, released its annual list of landowners who own the most acres in the United States. The nation's largest private landowners are the Emmerson family in California who own over 2.4 million acres.
You may wonder why U.S. citizens pay taxes on income earned abroad. U.S. taxes are based on citizenship, not country of residence. That means it doesn't matter where you call home, if you're considered a U.S. citizen, you have a tax obligation.
Well, if you qualify for the Foreign Tax Credit, the IRS will give you a tax credit equal to at least part of the taxes you paid to a foreign government. In many cases, they will credit you the entire amount you paid in foreign income taxes, removing any possibility of US double taxation.
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