Gravity, the speed of light, your first love—while it’s true that some things never change, the same can’t be said when it comes to property taxes by state. Purchasing a home may come with many unexpected expenses, and while property taxes are often lumped into mortgage payments, you shouldn’t ignore them. Property taxes fund public libraries, schools, and other services, and certain factors like home renovations or new restaurants can bump up your property taxes, creating a catch-22.
Whether you’re hoping to purchase your first home or move somewhere new, it’s essential to understand how property taxes vary by location. We calculated property tax rates in every state and found out how property taxes are projected to increase one, five, and ten years into the future. Keep reading to discover the property taxes by state, including those with the lowest property taxes and those tipping the scale.
Calculating Property Tax Increases Over Time
You don’t need a Magic 8 ball to determine whether your state’s property taxes will increase over time—we’ve already crunched the numbers.
When it comes to the states with the lowest property tax rates, Hawaii, Alabama, Colorado, and Louisiana reign supreme. States with the highest property tax rates include New Jersey, Illinois, Connecticut, and New Hampshire. For example, Illinois’ median property tax payment is $4,529. With Illinois’ average home appreciation, this number would reach $7,373 in ten years at its current property tax rate (2.24%).
It’s important to understand how your home’s property taxes may increase over the next decade, especially if it’s a significant price hike.
New Jersey residents currently pay more in property taxes than any other state at $8,488 per year. At its current property tax rate, New Jersey residents would pay $9,717 in property taxes in one year and $13,023 in property taxes in five years. At $13,023, the average New Jersey resident would put 15.3% of their current household income toward property taxes.
At the opposite end of the spectrum, Alabama is one of the best states for property taxes, as residents currently pay less than any other state at $608 per year. The property tax rate will likely increase in five years to $990, meaning the average Alabama resident would only put 1.9% of their current household income toward property taxes. The low property tax rate also presents a great opportunity for renters, as Hosty declared Alabama home to one of the best cities for Airbnb hosting.
How Much to Budget In Household Income for Property Taxes
According to the Charles Schwab Corporation, property tax and other household expenses should not exceed 28% of your pre-tax household income. This is a good rule of thumb to follow, but it begs the question—which states should you avoid, and which are the best states for property taxes?
Homeowners in New Jersey have to cough up 9.96% of their household income to property taxes, with the medium property tax payment at $8,488 and the median household income at $85,245. New York follows closely behind as the second state with the highest household income (7.86%) budgeted toward property taxes ($5,590). Connecticut has the third-highest property tax, with 7.47% of household income paid toward property taxes, totaling $5,966.
Regarding states with the lowest property taxes to income ratio, places like Alabama and West Virginia win out. West Virginians pay 1.50% of their household income to property tax, totaling $719. With the average median household income at $48,037, home buyers in West Virginia can expect to budget less for property taxes, giving them a headstart in the home-buying race.
The Opportunity Cost of Property Taxes
While a home with high property taxes and great schools might be the ultimate trade-off for some property owners, there’s nothing wrong with seeing if the grass is greener on the other side of the neighboring state’s fence.
The amount Texas residents currently pay in property taxes ($3,282) is equivalent to the average cost of an international trip, according to Value Penguin. In New York, property taxes in ten years will be nearly the same as a year’s worth of in-state college tuition at a public college ($10,423), according to U.S. News & World Report. In New Jersey, property taxes in five years will cost almost $2,000 more than the average bathroom remodel cost ($11,213), according to HomeAdvisor.
When it comes to reviewing property tax by state, certain places offer more budget-friendly options for homeowners. Plus, you can spend what you save on property taxes on other expenses like vacations, tuition, renovations, and even local nonprofits.
One surefire way to boost property value is with renovations. Thinking of hiring professionals to check that bathroom or kitchen renovation off your to-do list? Find home improvement and repair contractors for any type of project near you.
First, we determined the property tax rate in each state by dividing each state’s median property tax payment by its median home value, sourced from the U.S. Census Bureau’s American Community Survey.
From there, we used home appreciation rates from the Federal Housing Finance Agency (FHFA) to find each state’s prospective median home value in one, five, and 10 years. Then, we calculated what each state’s property taxes will look like in the future over the same time increments at its current property tax rate. Finally, we determined the percentage increase between property taxes today and in five years in each state.
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