Which U.S. States Have the Lowest Property Taxes?

Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.

Q:Which U.S. states are the most property-tax friendly?

It’d be easy— though not wholly accurate— to just look at the states’ published tax rates. But  factors such as exemptions and assessment ratios can reduce or boost your effective tax rate.

"A state may have a published rate of 10%, but if property is only assessed at 10% of market value, the effective tax rate is only 1% of market value," said Joshua E. Estes, co-founder of Estes & Gandhi, P.C., a boutique property tax firm in Dallas.

The states with the lowest effective property tax rates, ranging from .26% to .66%, are Hawaii, Alabama, Colorado, West Virginia, Louisiana, Delaware, Wyoming, South Carolina, Arkansas and Utah. Washington, D.C., though not a state, also cracks this top-10 list for homeowners.

This info is based on calculations from the most recent data available from the U.S. Census Bureau, said Michael A. Gillen, director of the Tax Accounting Group at Duane Morris in Philadelphia.

The average effective tax rate in the United States in 2015 was 1.18%, Mr. Gillen said. New Hampshire has an average effective property tax rate of 2.15%. That’s relatively high, Mr. Estes said, but the state is one of the most tax friendly because its other state and local taxes are very low.

Although residents in the Northeast typically face the highest property taxes, Mr. Gillen said, "some mid-Atlantic states have among the lowest property rates in the country–particularly Delaware, West Virginia and the District of Columbia." This is a result of their collecting a greater percentage of their revenue from individual or corporate income taxes or other sources, he said.

More:Do Home Ownership Changes in the U.S. Trigger a Property Tax Reassessment?

Conversely, "many states in the South and Southwest have lower property taxes, but these low property tax rates are often paired with high sales taxes," Mr. Gillen said. "Alabama has the fourth-highest sales tax rate in the country." It’s 4% but local municipalities assess their own sales tax, resulting in a combined average sales tax rate of 9.03% for the state, he said.

Tax exemptions can affect rates, too. For example, Texas’s high property tax rates are offset by a homestead exemption. Some states, such as California and Texas, also limit the amount of annual tax increases. This can lead to significant savings for those who have lived in the same house for a while, Mr. Estes said.

Consider, too, how often states reassess property values. In Arkansas, property values change only every five years. But in Florida and Texas, revaluation occurs yearly, Mr. Estes said.

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Email your questions to editors@mansionglobal.com. Check for answers weekly at www.mansionglobal.com.