Property taxes are one of the cornerstones of state and local government. The revenue they generate helps fund essential services such as schools, public safety, and infrastructure. However, now that property values have begun outpacing inflation in many parts of the country, they've become a major consideration for home buyers.
Even though the effective property tax rate is significantly less than it was ten years ago, it still adds considerably to the cost of homeownership. In fact, housing costs are one of the most frequently cited reasons for moving. People relocating to states with low property taxes are normally searching for more flexibility in their budget and lifestyle. If you're contemplating a move, here are the five states offering some of the greatest tax relief.
Hawaii
At 0.32 percent, Hawaiians pay the least amount of property tax in the entire country. Though the state's cost of living is high, there are a number of factors that keep its taxes relatively low.
- Tourism. Thanks to Hawaii’s general excise and transit accommodation tax, which applies to all business transactions, hotel rooms, and home rentals, a significant portion of the state’s revenue is actually collected from the millions of people who visit every year.
- Real Estate Prices. The median home value in Hawaii is well above the national average. As a result, even low tax rates generate significant income.
- Legal Safeguards. The Hawaiian legislature has passed generous protections for owner-occupants (people whose house is their primary residence), meaning that residents who live in the state year-round pay less than ones who live part-time in vacation homes.
Finally, taxes in Hawaii are administered by county governments, not the state. Mayors and councils are responsible for setting rates, making them more sensitive to the needs and demands of constituents interested in saving.
Alabama
Alabama homeowners pay only 0.4 percent in property taxes, the second lowest rate in the nation. Its affordable rate is a result of low home prices, as well as a number of legal and political measures, such as:
- Constitutional Limits. When the state constitution was reformed in 1901, it capped property tax increases at seven percent annually.
- Low Assessment Ratios. Owner-occupied homes are assessed at ten percent of their market value, meaning that, for tax purposes, the value of Alabama homes are notably lower than they would be in the majority of the country.
- Landowners. Both homeowners and business owners are extremely reluctant to raise property taxes, often lobbying against proposed hikes.
These factors not only make homeownership affordable and sustainable for most residents, they also free up money for spending, saving, and investing - a huge benefit to the state’s rural and urban communities.
Colorado
Colorado has a 0.55 percent property tax, the third lowest in the nation. Despite its relatively high housing costs, the state has maintained its affordable rate due to a mix of tax laws, assessment policies, and constitutional amendments.
- Gallagher Amendment. This law stated that residential property taxes could only account for 45 percent of the state’s total property tax base. In order to comply, the state was continually forced to lower property taxes from 1982 until 2022. Even though the law has since been repealed, most communities still enjoy low rates thanks to its lingering influence.
- Taxpayer’s Bill of Rights. Passed in 1992, this constitutional amendment restricts how much money the state can collect each year and requires voter approval for all tax increases, including taxes on residential and commercial property.
- Low Assessment Rates. Like Alabama, Colorado assesses homes for a relatively small portion of their market value: 6.25 percent. However, this may change in the near future.
Low property taxes mitigate the effects of rising home prices, making it easier for Coloradans to purchase a house despite high mortgage rates. It also lessens the burdens on seniors, enabling them to retire and age in place.
Wyoming
Wyoming’s property taxes are nearly the same as Colorado’s: 0.56 percent. The reasons why have to do both with the state government and its access to natural resources.
- Resource Revenue. Thanks to its abundance of raw materials, Wyoming funds government programs through royalties, severance fees, and leasing rights on its oil, mineral, and natural gas reserves.
- Low Population. Wyoming is one of the least populated parts of the country. As a result, demands on infrastructure and government services are fairly small, allowing the state to operate on a comparatively frugal budget.
- Responsible Spending. Traditionally, the state government has saved a considerable portion of its annual revenue, allowing it to weather financial downturns without raising taxes.
Similar to Colorado and Alabama, Wyoming’s property assessments are low compared to the rest of the nation. This reduces pressure on homeowners, preventing long-term residents from being priced out of their homes, even as property values go up.
Louisiana
Louisiana has an effective property tax rate of 0.56 percent, the same as Wyoming’s. State taxpayers have kept rates low thanks to a number of measures passed to benefit homeowners. The state also has access to alternate revenue streams, further reducing the tax burden.
- Homestead Exemption. A homestead exemption protects a portion of your property from creditors and tax collectors. Louisiana protects the first $75,000 of a home's assessed value, one of the most generous property tax exemptions in the United States.
- Constitutional Limitations. According to the Louisiana constitution, the state cannot raise property taxes without voter approval. Furthermore, it cannot assess residential properties at more than ten percent of their market value.
- Gaming and Natural Resources. Louisiana generates a sizable portion of its tax revenue through fees on oil and gas extraction. Gaming activity, such as casinos, lotteries, and horseracing, also makes up a significant portion of its budget, lessening the burden on homeowners.
Low property taxes make Louisiana an attractive destination for first-time home buyers, as well as retirees and individuals looking to increase their disposable income. The state's tax policies also help low and middle-income families, allowing them to create stable communities with high homeownership rates.
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