What are property taxes?

What are property taxes?

In the real estate world, property taxes refer specifically to taxes placed on real property, which includes land and any permanent structures attached to it. This includes houses, townhomes, or condominiums. Unlike standard sales taxes paid once at the register, property taxes are a recurring cost of homeownership that you'll pay for as long as you own the home.

Local governments collect these funds to keep public services and infrastructure running smoothly. Knowing how much you'll owe in property taxes each year helps you accurately estimate your monthly housing budget and ensures unexpected expenses don't catch you off guard.

Highest and lowest property tax states

While every home buyer's individual tax bill depends on their specific municipality, looking at effective property tax rates by state as reported by the Tax Foundation gives you a clear snapshot of national trends.

Highest property tax states

If you're looking at property in the Northeast or parts of the Midwest, you'll encounter some of the highest effective property tax rates in the nation. The five states with the highest effective rates in 2026 are:

• New Jersey: 1.88% effective tax rate
• Illinois: 1.88% effective tax rate
• Connecticut: 1.54% effective tax rate
• Vermont: 1.51% effective tax rate
• New Hampshire: 1.50% effective tax rate

Lowest property tax states

On the other end of the spectrum, several states maintain significantly lower effective tax rates. The five states with the lowest effective property tax rates in 2026 are:

• Hawaii: 0.29% effective tax rate
• Alabama: 0.37% effective tax rate
• Arizona: 0.48% effective tax rate
• Utah: 0.48% effective tax rate
• South Carolina: 0.49% effective tax rate

States ranked by property tax rate

To help you compare costs across the nation, the table below ranks all 50 states by their effective property tax rate for 2024, the most recent year for which data is available. It highlights estimated annual taxes on a typical U.S. home (based on a national median new sale price of $403,200) alongside estimated taxes based on each individual state's median home value.

Notice how Hawaii ranks last in effective tax rate at 0.29%, yet because its median home value is $841,274, the estimated tax bill ($2,440) is higher than West Virginia ($855), where the tax rate is nearly double. That's why it’s important to consider both home values and effective tax rates when evaluating a state.

How are property taxes determined?

Your total property tax bill isn't chosen at random. Local tax authorities calculate what you owe using two core metrics: your home's assessed value and the local millage rate.

It's helpful to clarify the difference between a home's market value (what a buyer is willing to pay for it) and its assessed value (the value assigned by a government assessor for taxation purposes). Similarly, while an effective tax rate represents the overall percentage of total value paid, the millage rate is the official multiplier used by local officials to calculate your exact bill.

Assessed value

Your home's assessed value is an official estimate calculated by your local government tax assessor. Assessors look at factors such as recent sales of comparable properties, property size, improvements made to the home, and local market trends. In some areas, owner-occupant exclusions or homestead adjustments are subtracted directly from this figure to determine your taxable value.

Millage rate

The millage rate (or mill rate) is the actual tax rate levied on your property's value. One "mill" represents $1 of tax for every $1,000 of assessed value. Local tax authorities, such as school districts, county boards, and municipal governments, set these rates annually to generate the revenue needed for public operating budgets.

Example property tax calculation

To see how this works in real life, let's look at a home in Boston, Massachusetts, where the residential millage rate is set at $12.40 per $1,000 of assessed value:

• Determine assessed value: Suppose your home has an assessed value of $700,000.
• Divide by 1,000: Convert the total value into thousand-dollar increments ($700,000 / 1,000 = 700).
• Multiply by the millage rate: Multiply 700 by $12.40 to get your total tax bill.
• Annual Tax Bill = 700 x $12.40 = $8,680

You can usually look up your local mill rate on your county or municipal tax assessor's official website.

Why do property tax rates vary so much?

If you've ever wondered why two nearby states, or even towns, have drastically different property tax rates, it usually comes down to local public financing structure.

Local services and budgets

Cities and counties rely heavily on property taxes to fund community infrastructure. If a city decides to build state-of-the-art schools, maintain expansive public park systems, or hire additional emergency response staff, it needs to raise additional money. Communities that offer fewer public services and operate on leaner budgets can charge lower tax rates.

Local home values

Local property values play a major role in dictating how high a tax rate must be to meet community funding goals. Imagine two neighboring towns that each require $10 million to fund public services.

• Town A has an average home value of $250,000.
• Town B has an average home value of $500,000.

To raise the same $10 million budget, Town B can charge a significantly lower property tax rate because the average home holds more value. In addition, as overall home prices rise over time, local assessed values often adjust, which can alter your annual bill.

How to reduce your property taxes

While paying property taxes is a necessary part of supporting your local community, you shouldn't have to pay more than your fair share. If your bill feels a little too steep or if you suspect your property has been overvalued, there are steps you can take to lower your expenses. Keep in mind that specific rules, application deadlines, and guidelines vary depending on where you live.

Request a reassessment

Assessors evaluate thousands of homes, and errors can happen. If you believe your property's assessed value is higher than its true market worth, you can ask for a formal reassessment.

Start by contacting your local assessor's office to find out their appeal procedures and deadlines. You'll need to present supporting evidence, such as recent sales records of comparable homes in your immediate neighborhood or a private appraisal demonstrating a lower market value. Proving that similar homes sold for less can build a strong case for lowering your assessment.

Apply for state property tax exemptions

Many state and local governments offer tax exemptions that reduce your home's taxable value. Qualifying for an exemption essentially waives taxes on a portion of your property value. Common categories include:

• Senior citizen exemptions: Homeowners over a certain age (often 65 or older) may qualify to reduce their taxable property value or freeze their tax rate.
• Veteran exemptions: Military veterans, especially those with service-connected disabilities, often qualify for property tax relief, ranging from a partial reduction to a full exemption.
• Homestead exemptions: Many states allow primary homeowners (those who live in the home rather than renting it out) to exclude a fixed dollar amount of their home's value from property taxation.

Be sure to review your state's tax department website to explore all available property tax exemptions and submit your paperwork before annual deadlines.

FAQ

Here are clear answers to common questions about property taxes, assessments, and payments:

Which states have no property taxes?

Currently, there are no states in the U.S. that operate with zero property taxes. While some state legislatures occasionally debate tax reforms, local governments in every state rely on property taxes to fund local infrastructure and services.

Do property taxes go up every year?

Not necessarily, but they are inclined to rise over time. Inflation naturally increases the operational costs of municipal services, public schools, and police departments. As home values rise or local governments update their budgets, tax bills often adjust upward accordingly. Several factors lead to property tax increase scenarios, including community bond measures and major home renovations.

Can you appeal your property tax assessment?

Yes, you have the ability to appeal your property tax assessment if you believe it’s inaccurate or unfair. Reach out to your local assessor's office right away to get details on the appeal window, necessary forms, and required documentation.

Are property taxes included in a mortgage payment?

In many cases, yes. Many mortgage lenders bundle your estimated property taxes and homeowners insurance into your monthly mortgage payment. They set aside these funds in an escrow account and automatically pay your property tax bills on your behalf when they come due. Keep in mind that once your mortgage is fully paid off, you'll be responsible for paying your property tax bills manually.

What happens if you don’t pay property taxes?

Failing to pay property taxes can lead to serious legal and financial consequences. If taxes go unpaid, your local tax authority may place a tax delinquency lien against your home. If the debt remains unpaid over an extended period, the government can initiate foreclosure proceedings and sell the property to recover unpaid taxes.

The bottom line: Research property taxes before you buy

Property taxes play a significant role in your overall cost of living and long-term homeownership budget. Before you decide where to buy your next home, take time to research effective state tax rates, average local property values, and available exemption programs. Doing your homework early ensures you can navigate your home search with clarity and confidence.

If you’re considering downsizing or moving to reduce your tax burden, consider partnering with a Redfin agent who can help you throughout the process of selling your current home.