When shopping for a new home, it’s easy to get sidetracked by your mortgage amount, but another big cost is important to remember: taxes. By putting the “T” in PITI, your property taxes can add up to hundreds of dollars per month on top of your other real estate costs.
Whether you own a closet-sized condo in the city or a huge cabin in the mountains, you’re going to have to pay property taxes. This is because even if you have paid off your entire mortgage and you own your home, you will still have to pay these taxes.
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How property taxes work
Unfortunately, it’s not easy to determine how much your property taxes will be each year. It varies not only by state but by county, and it can change from year to year depending on the needs of your community and the value of your home.
Your property taxes are billed based on the value of your home. This is not your last assessment; instead, it’s based on the assessed value, which is determined by your local government. When the value of your property increases, you will likely see an increase in your property taxes, especially in areas that use market value to determine an assessed value.
Rather than a single flat rate, however, property taxes are essentially a collection of several different taxes for various services provided by your local and state governments. For example, your property taxes may include separate rates for:
- Fire department
- Public library
- City waste
- Local schools
- County management
- Public parks
The amount needed for each type of service may vary each year, which can increase or decrease your taxes. When you receive your property tax bill, it usually includes line items describing where each portion of your taxes will go. When you add up the rates for each individual service, the total is your effective property tax rate (sometimes referred to as the thousandth rate).
States with the highest effective rates
While effective property tax rates can vary wildly from municipality to municipality, you can get a general idea of the costs you might see when you move by looking at state averages. Here’s a look at the 10 states with the highest effective property tax rates as a percentage of home value:
- New-Jersey: 2.13%
- Illinois: 1.97%
- New Hampshire: 1.89%
- Vermont: 1.76%
- Connecticut: 1.73%
- Texas: 1.60%
- Nebraska: 1.54%
- Wisconsin: 1.53%
- Ohio: 1.52%
- Iowa: 1.43%
For comparison, the average effective rate in 2020 was 1.1%. That puts a few states on the list at more than twice the national average. Of course, this does not mean that every municipality in the state will charge the same rates; some areas may charge more, while others will have much lower rates.
Ways to lower your property taxes
The two factors that go into your property taxes are the effective tax rate, which is set by the government, and the estimated value of your home. Since you’ll have a hard time convincing the government to change your rates, the only real way to affect your property taxes is through the assessed value of your home.
Specifically, there are areas that may allow you to appeal your assessed value if you believe it is not accurate. You will need to provide some sort of proof that your home has been assessed too high in order to reduce the assessed value and thereby lower your tax rate.
The easiest way to prove overrated value is to get your own appraisal. While a small difference between the appraised value and the property appraisal can be ignored, if your home is priced much lower than what was appraised, you may have a case.
In the end, residential property taxes are almost unavoidable in the United States. If you own your home, you will have to pay taxes on it.
That said, it’s important to keep in mind that the property tax rate isn’t quite the tax story of any given state. For example, while New Hampshire may have the third highest average property tax rate, it has no state sales tax or state income tax, so your charge overall tax may be lower than in states that charge less property taxes.