- Written by Terry Turner
Senior Financial Writer and Financial Wellness Facilitator
Terry Turner has more than 35 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).Read More
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Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.Read More
- Financially Reviewed ByEbony J. Howard, CPA
Ebony J. Howard, CPA
Credentialed Tax Expert at Intuit
Ebony J. Howard is a certified public accountant and freelance consultant with a background in accounting, personal finance, and income tax planning and preparation. She specializes in analyzing financial information in the health care, banking and real estate sectors.Read More
- Published: April 5, 2023
- Updated: June 23, 2023
- 7 min read time
- This page features 7 Cited Research ArticlesKey Takeaways
- Property taxes are real estate taxes collected by municipalities and used to pay for essential services like road maintenance, schools and water treatment.
- Your property taxes are calculated using the value of your home and your local property tax rate.
- Property tax rates vary significantly from state to state, and county by county within each state. Where you live has a direct impact on your property taxes.
- In general, property tax rates are higher in northern states. New Jersey has the highest property tax rate of all states.
What Are Property Taxes?
Property taxes are taxes levied on real estate by city or county municipal governments. Both individuals and corporations are subject to property taxes on homes and businesses, on land with or without any buildings. According to an article from Tax Foundation, property taxes account for 11.4% of all tax revenue across the U.S. and are used to pay for the following services.Services Paid For By Property Taxes
- Water treatment
- Road and highway construction
- Fire protections services
- Law enforcement
Your property tax bill is based on the value of your home, land or building, and your state’s tax rate. You will want to factor local property tax rates into your retirement planning since the higher the property tax rate in your state, the larger an effect it will have on your retirement budget. Some, but not all, states allow full and/or partial property tax exemptions for seniors or for veterans.If you feel your property taxes are too high, you can appeal your property tax assessment with your city or county within 45 days of the date the Annual Notice of Assessment was mailed. But be aware that your property taxes could potentially increase further due to an appeal for reassessment.
Property Taxes by State
Property taxes are calculated by multiplying your property value with your state tax rate. Each state sets its own rate for property taxes. Although some states equalize tax rates throughout their borders, many counties within the same state can have vastly different tax rates. Therefore, where you choose to live during retirement matters.
Property taxes are used for the vital infrastructure and services that make communities possible. While it may seem smart to retire in a county where you’ll pay the least in property taxes, doing so means you’ll also live in a county with the least number of services.
There are notable differences in property taxes in popular retirement states. For instance, the average property tax rate in Florida is 0.97%, while Arizona’s tax rate is 0.72%. Texas, in contrast, has an average property tax rate of 1.81%.
Top 5 States With Highest Property Taxes
The state property tax rate is an average of all the rates posted by municipalities. States tend to have higher property tax rates either out of specific need or because they collect less from other types of taxes.In 2023, the states with the highest average property tax rates are:
- Connecticut: 1.63%
- Illinois: 1.73%
- Texas: 1.81%
- New Hampshire: 1.86%
- New Jersey: 1.89%
Top 5 States with Lowest Property Taxes
Retiring in a state with a lower property tax rate means there’s less pressure on your retirement budget, especially if your home is fully paid off. Although property tax rates can change, they’re usually only adjusted when municipal budgets are set, so they don’t increase rapidly.In 2023, the states with the lowest average property tax rates are:Never Miss Important News or Updates with Our Weekly NewsletterGet money-saving tips, hard-to-find info and tactics for a successful retirement in our free weekly newsletter.
Why Property Taxes Vary by State
Property tax rates are set by municipalities to cover their specific needs. That’s why average property tax rates vary so much between states. It’s also why property tax rates can vary between one county to the next — each municipality’s needs and priorities are different.
Taxes are collected through a variety of routes. Many states collect most of their tax revenue through sales or income taxes. New Hampshire, on the other hand, collects the bulk of its tax revenue through property taxes, hence it’s higher tax rate.
It’s also important to understand that having a low property tax rate doesn’t always mean a low property tax amount. Hawaii, for instance, has a very low property tax rate. At the same time, it has very high housing prices. Since your property tax is based on the tax rate and the value of your home, the value of your home also plays a big factor in the amount you’ll pay.
How Property Taxes Affect Retirement Planning
Property taxes can be a significant portion of your housing expenses when you retire. Although property taxes can remain stable for several years in a row, they also have the potential to increase, which could be problematic if you are on a fixed income in retirement.
A high property tax rate can affect where you choose to live in your retirement years. If you plan to stay where you are, you’ll already have an idea of the property tax rate and amount you’ll pay each year. If you plan to relocate, it pays to check the property tax rate in the county of your choice.
A high tax rate might lead you to amend your decision. You might also choose to reduce the size of your residence, as smaller real estate packages generally pay less in property taxes.
Other Factors To Consider
There are other factors that affect property taxes, both before and during retirement. Many states offer property tax credits, deductions or exemptions under certain circumstances.
- Senior Citizens
- Many states give property tax deductions to seniors over 65, and 12 states provide complete exemptions: Alabama, Alaska, Florida, Georgia, Hawaii, Mississippi, New Hampshire, New York, South Carolina, South Dakota, Texas and Washington.
- All states offer at least some form of property tax deduction for veterans, and 17 states provide full exemptions for disabled veterans: Alabama, Arkansas, Florida, Hawaii, Illinois, Iowa, Maryland, Michigan, Nebraska, New Hampshire, New Jersey, New Mexico, Oklahoma, Pennsylvania, South Carolina, Texas and Virginia.
- Other Assets with Property Taxes
- Property taxes generally apply to real estate, but more than half of U.S. states also levy a property tax on cars, trucks and drivable machinery. There are 23 states that don’t require property taxes on vehicles: Alaska, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Maryland, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Washington and Wisconsin.
- Tax Caps
- Property tax caps regulate the limits to which property taxes can rise. Enacted in 46 states (and D.C.), and legislating the extent to which rates, levies and home assessments can rise, these caps vary by state and in terms of degree. A state that limits how much your home’s assessed value can rise, for instance, will influence how much or little your property taxes can change.
In addition, your municipality may offer you a slight discount if you pay your property taxes in a lump sum, rather than quarterly or monthly.
Property Taxes FAQsAre property taxes higher in urban or rural areas?Property taxes typically trend higher in urban areas since the assessed value of homes is usually higher. There is also more need in urban areas for the services property taxes fund, like education, fire prevention and water treatment.What impact do property taxes have on choosing a retirement destination?Housing, which includes mortgages, property taxes, rent and repairs, is one of the largest expense categories for most retirees. In fact, retirees spend nearly one third of their income on housing. Having a lower tax rate can help reduce that expense, which is important if you’re on a fixed income. Property tax rates are also generally lower in southern states, which are often attractive retirement destinations.Can property tax rates change from year to year?It is possible for property tax rates to change from year to year, but it’s not automatic. Property tax rates change when municipalities set their budgets. That may happen on a yearly basis, but property tax rates don’t always change from one year to the next. It depends on your municipality’s immediate or specific needs and priorities.Advertisement
Connect With a Financial Advisor InstantlyLast Modified: June 23, 2023
7 Cited Research Articles
- Bunn, D. & Weigel, C.P. (2023, February 27). Sources of US Tax Revenue by Tax Type. Retrieved from US Tax Revenue by Tax Type: Sources of US Government Revenue (taxfoundation.org)
- Tax Foundation. (2023). Property Taxes. Retrieved from Property Taxes | Property Tax Analysis | Tax Foundation
- Tax Rates. (2023). 2022-2023 Tax Resource. Retrieved from Property Tax Rates By State 2023 - Tax-Rates.org
- VA Claims Insider. (2022, December 20). 18 States With Full Property Tax Exemption For 100 Disabled Veterans. Retrieved from 18 States With Full Property Tax Exemption for 100 Disabled Veterans (The Definitive Guide) (vaclaimsinsider.com)
- Bearden, B. (2022, October 6). 2022 Spending in Retirement Survey: Understanding the Pandemic’s Impact. Retrieved from ebri_ib_572_spendinginret-6oct22.pdf
- Walczak, J. (2018, April 23). Property Tax Limitation Regimes: A Primer. Retrieved from Property Tax Limitation Regimes: A Primer | Tax Foundation
- US Census Bureau. (n.d.). Quarterly Summary of State and Local Government Tax Revenue for First Quarter 2022. Retrieved from g22-qtax1.pdf (census.gov)
- Edited By
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