A breakdown of 2022 property tax by state

Among all of the operating expenses that come with owning a rental home, property taxes are the one cost that real estate investors have little control over.

Depending on the amount, property taxes can be a minor issue or a major expense. It’s important to think about how property taxes might change during the time you own the property and the impact of rising taxes on your return on investment (“ROI”).

In this article, we’ll take a look at how property taxes are calculated, tax rates for each state, and ideas for keeping property taxes under control.

Property tax overview

Property tax is based on the assessed value of real estate.

Also known as an “ad valorem” tax, property taxes are normally levied by the county the property is located in and used to fund the operating budgets of school districts, police and fire departments, and local infrastructure projects such as water treatment plants and highway construction.

The local tax assessor will generally calculate a property’s market value every few years using a combination of the income, cost, and sales evaluation appraisal methods. In some counties, a change of ownership may also reset the assessed value of a property even if the scheduled assessment is not due for another year. 

Then the assessor will multiply the market value by the assessment rate to determine the assessed property value. Finally, the assessor will multiply the assessed property value by the millage or mill rate for the region to determine the annual property tax amount.

The mill rate is based on the budgeting needs for each taxing entity in the county, such as cities and school districts. One mill is equal to 1/10th of one cent, which means that for every $100 of assessed property value one mill would equal $0.10 or $1,000 of assessed value would equal $1.00.

If the total assessed property value in a county is $1 billion and all of the taxing districts in the county require a combined total of $15 million in tax revenues to fund their budgets, unless the county has other revenue streams available, the mill levy used to determine the tax amount for each individual property would be 1.5% ($15 million / $1 billion).

Based on this example, if your property has an assessed value of $500,000 your property tax for the year would be $7,500 ($500,000 x 1.5%).

Property taxes by state

Now let’s take a look at the property taxes by state.

To create this chart, we used Zillow to determine the typical value of middle price tier single-family homes and the property tax rates listed by state from WalletHub to determine the average state tax rate and the amount of annual property taxes.

State Home Value Avg State Tax Rate Property Tax
Alabama $183,100 0.410% $751
Alaska $308,400 1.190% $3,670
Arizona $396,200 0.660% $2,615
Arkansas $161,600 0.620% $1,002
California $727,400 0.760% $5,528
Colorado $528,200 0.510% $2,694
Connecticut $329,900 2.140% $7,060
Deleware $327,300 0.570% $1,866
District of Columbia $693,800 0.560% $3,886
Florida $334,900 0.890% $2,981
Georgia $275,100 0.920% $2,531
Hawaii $809,600 0.280% $2,391
Idaho $447,200 0.690% $3,086
Illinois $244,500 2.270% $5,550
Indiana $200,100 0.850% $1,701
Iowa $176,500 1.570% $2,771
Kansas $190,400 1.410% $2,685
Kentucky $180,000 0.860% $1,548
Louisiana $199,500 0.550% $1,097
Maine $326,000 1.360% $4,434
Maryland $380,400 1.090% $4,146
Massachusetts $541,800 1.230% $6,664
Michigan $218,400 1.540% $3,363
Minnesota $311,200 1.120% $3,485
Mississippi $151,200 0.810% $1,225
Missouri $207,900 0.970% $2,017
Montana $400,400 0.840% $3,363
Nebraska $218,900 1.730% $3,787
Nevada $410,100 0.600% $2,461
New Hampshire $395,300 2.180% $8,618
New Jersey $430,000 2.490% $10,707
New Mexico $263,700 0.800% $2,110
New York $372,600 1.720% $6,409
North Carolina $277,800 0.840% $2,334
North Dakota $258,100 0.980% $2,529
Ohio $192,400 1.560% $3,001
Oklahoma $162,400 0.900% $1,462
Oregon $482,300 0.970% $4,678
Pennsylvania $246,900 1.580% $3,901
Rhode Island $398,300 1.630% $6,492
South Carolina $252,300 0.570% $1,438
South Dakota $264,400 1.310% $3,464
Tennessee $258,600 0.710% $1,836
Texas $271,200 1.800% $4,882
Utah $511,800 0.630% $3,224
Vermont $322,500 1.900% $6,128
Virginia $345,600 0.820% $2,834
Washington $563,900 0.980% $5,526
West Virginia $122,300 0.580% $709
Wisconsin $242,500 1.8580% $4,486
Wyoming $292,500 0.610% $1,784

Homeowners in Hawaii and Alabama benefit from the lowest property tax rates, while residents in New Jersey and Illinois see the highest property tax rates.

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Where to find your property tax

Property taxes vary from state to state and have a significant impact on the ROI a rental property generates.

While using back-of-the-napkin calculations like GRM and the 50% Rule to estimate property value and operating expenses, it’s important to always put together a pro forma statement using as close to actual numbers before investing in a home to rent. 

You can find property tax assessments by visiting the local county assessor’s or appraiser’s website. Some county assessors also publish the anticipated change in property taxes for upcoming years, which makes creating an accurate return projection that much easier.

As you narrow down your search for a rental property investment, another good resource for estimating property taxes, operating expenses, and overall return is the Roofstock Cloudhouse Calculator. Simply enter the address of any single-family home in the U.S. and receive a forecast of potential return, even if the home has never been used as a rental before.

How to lower your property taxes

While there’s no way to avoid them, there are a few things real estate investors can do to lower the property taxes paid on a rental property:

Review your property data

Make sure that the county has accurate information on your property. Lot size, construction date and materials, square footage, number of bedrooms and bathrooms, and improvements can all affect the assessed value used for property tax purposes. 

Compare the data the county has on file to the appraisal done when you purchased the house, then immediately notify the county assessor’s office if there are any mistakes.

Improve with an eye on ROI

Before making any improvements, ask your contractor or contact the county tax department for an estimate on how much your property taxes will go up if you make an improvement such as building a backyard deck or enclosing the garage. 

Then compare the increase in operating expenses to your anticipated rental increase from the improvement to make sure you’re getting a real return on your investment.

Keep curb appeal under control

If your house looks nicer than all of the other homes in the neighborhood that just might trigger an increase in assessed value and higher property taxes. As a real estate investor you naturally have pride of ownership, but don’t go overboard by trying to have better curb appeal than your next door neighbors do. 

As long as your home is attractive to tenants, resist the urge to update the landscaping or repaint the outside of your house if it really doesn’t need it.

Look at the neighbors

When you receive the notice of assessment from the county tax collector, jump online and see what your neighbors are paying in property tax. 

Just like you can run sales and rent comps, you can also run quick property comparables to make sure that the assessor is being fair and accurate by giving comparable homes the same assessed value for property tax purposes.

Appeal your tax assessment

If you feel your assessed value of the property is unjust, you can always appeal your property tax bill. Most counties send out the notice of assessed value a month or so before sending you the property tax bill, so that’s your window of opportunity to appeal your tax assessment. 

An attorney, if you choose to hire one to represent you on the appeal, will generally charge a small fixed fee plus a percentage of the property tax reduction, and can also tell you if there’s a good chance you’ll win the property tax assessment appeal based on their previous experience.

Wrapping up

Property taxes are used by local and county governments to fund operating budgets for things like school districts, police and fire departments, and infrastructure projects such as water treatment or highway improvements. While all of these initiatives can help to increase property value, in some states property taxes can have a significant effect on how profitable a rental property is.

When you're researching potential investments, be sure to put together a pro forma using accurate income and expense numbers. If you already own a home in a state where property taxes are high, remember that there may be some things you can do to lower your property taxes and improve your cash flow.

 

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This article, and the Roofstock Blog in general, is intended for informational and educational purposes only, and is not investment, tax, financial planning, legal, or real estate advice. Roofstock is not your advisor or agent. Please consult your own experts for advice in these areas. Although Roofstock provides information it believes to be accurate, Roofstock makes no representations or warranties about the accuracy or completeness of the information contained on this blog.
Jeff Rohde

Author

Jeff Rohde

Jeff has over 25 years of experience in all segments of the real estate industry including investing, brokerage, residential, commercial, and property management. While his real estate business runs on autopilot, he writes articles to help other investors grow and manage their real estate portfolios.

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