A Clear Guide To Understanding Property Taxes

Understanding property taxes is an essential part of owning a home. City, county, and school districts levied property taxes on the properties within their jurisdiction. The amount of property tax that a homeowner pays is based on the value of their property and the tax rate set by the local government.

But who comes up with the property’s overall value? Below, we’ll run through how property taxes work and how they are calculated. We will also cover what the average property tax rate is in the United States while looking at the different factors that can affect your property tax bill.

Understanding Property Taxes

Property taxes are a form of tax that homeowners pay on their properties. In the United States, property taxes are levied by state and local governments and are used to fund public services such as schools, roads, and public safety. 

How Property Taxes Work

Property taxes are calculated by multiplying the value of the property by the tax rate. The value of the property is determined by the local government’s tax assessor, who assesses the property’s value based on its market value, location, and condition. The tax rate is set by the local government and is usually expressed as a percentage of the property’s value.

Property taxes are usually paid annually, and the amount due is based on the assessed value of the property and the tax rate. Because of that, if the value of the property increases, the amount of property tax due will also increase. Similarly, if the value of the property decreases, the amount of property tax due will also decrease.

Factors Affecting Property Taxes

Several factors can affect the amount of property tax due, including the value of the property, the tax rate, and any exemptions or deductions for which the homeowner may be eligible. Some states offer homestead exemptions, which reduce the amount of property tax due for homeowners who live in their homes as their primary residence.

The location of the property can also affect the amount of property tax due. Properties located in areas with higher property values or in areas with higher tax rates will generally have higher property taxes. Similarly, properties located in areas with lower property values or in areas with lower tax rates will generally have lower property taxes.

Suppose you disagree with your house’s appraised value determined by the local government. In that case, you usually have a chance to file a disagreement within a certain timeframe to get re-evaluated. 

Property Taxes in Different States

Property taxes vary widely depending on where you live. Each state has its laws and regulations regarding property taxes, and the rates can be affected by a variety of factors, including the value of the property, the local tax rate, and the type of property. Here’s a closer look at property taxes in different states.

Property Taxes in Pennsylvania

Pennsylvania has some of the highest property taxes in the country. According to Forbes, Pennsylvania is ranked 10th in the nation for highest property taxes, with an average effective property tax rate of 1.53%. This means that the average homeowner in Pennsylvania pays $2,418 in property taxes each year.

One of the reasons for Pennsylvania’s high property taxes is the state’s reliance on property taxes to fund education. Pennsylvania ranks 44th in the nation for state funding of education, which means that local school districts are forced to rely heavily on property taxes to fund their operations.

Average Property Tax by State

According to Rocket Mortgage, the average effective property tax rate in the United States is 1.07%. However, this rate can vary widely from state to state. For example, New Jersey has the highest average effective property tax rate in the country at 2.47%, while Hawaii has the lowest at 0.28%.

It’s important to note that the average property tax rate can also vary widely within a state. For example, in Texas, the average effective property tax rate is 1.81%, but some counties have rates as high as 2.83%. 

Homeowners should always research the specific property tax rates in their area to get an accurate picture of what they can expect to pay.

Average Property Tax

As mentioned earlier, the average property tax rate in the United States is 1.07%. According to the 2021 Census Bureau, the median home price in the U.S. is $244,900. Therefore, the average property tax is about $2,620 according to this data. 

Remember, this is an annual amount. In essence, this average property tax would add $218.33 to your mortgage payment each month. 

Of course, this number rises and falls based on the assessed value of your home and the tax rate. Let’s say that your house is appraised at $350,000 and you are taxed at the 1.07% rate. That results in $3,745 in property taxes due annually, which would be broken down to $312.08 every month. 

This is a substantial amount of money that can determine whether a property is within your desired budget or not. That’s why you must know what the property tax is for that location along with the assessed value of the home. You’ll want to give yourself a cushion as well in case your home is valued higher in the coming years, thus increasing your tax bill.  

It is important to note that property tax rates and assessments can change from year to year. Property owners should check with their local government to determine the most up-to-date information on property tax rates and assessments.

Comparing Average Property Tax by State

Property taxes vary from state to state, and it’s essential to be aware of the average property tax in your state to make informed decisions. In this section, we’ll compare the average property tax by state and provide insights into the states with the highest and lowest property taxes.

States With The Highest Average Property Tax

According to Rocket Mortgage, the state with the highest average property tax is New Jersey, with New Hampshire, Illinois, Connecticut, Vermont, and Wisconsin all following closely with average property taxes over $4,000 for each of these states.  

It’s important to note that property taxes are usually collected on the county level, which makes a direct state-to-state comparison difficult. Per TaxFoundation.org, several counties near New York City all have an average property tax of more than $10,000 – the highest in the country. 

States With The Lowest Average Property Tax

On the other hand, Hawaii has the lowest average property tax of $630, followed by Alabama with an average property tax of $776.

Certain counties in Alabama, Louisiana, and Alaska have average property tax rates below $200 annually, once again referring to data compiled by TaxFoundation.org. 

Conclusion

Overall, understanding property taxes is essential for homeowners and investors to manage their finances effectively. By understanding how property taxes are calculated, the factors that can affect property taxes, and how property taxes are paid, individuals can plan and budget accordingly. 

Thomas Hudak, an Eastern Pennsylvania Realtor, can provide valuable resources and expertise to help individuals navigate the complex world of property taxes and achieve their real estate ambitions. Contact him today!