By Bill Lyons | Published on May 9, 2025
TABLE OF CONTENTS

    KEY TAKEAWAYS

    • Property tax rates vary by state, with some states having significantly higher or lower rates that impact overall homeownership costs.
    • Property taxes are calculated based on the state tax rate, assessment ratio, and property value, so it’s important to understand how these factors affect your annual tax bill.
    • Certain states offer lower property tax rates, which can be beneficial for homeowners and real estate investors looking to reduce expenses.
    • Exploring financing options like non-QM mortgages through Griffin Funding can help home buyers navigate the costs of homeownership while securing the right loan for their needs.

    How Do Property Taxes Work?

    Property taxes are local government fees imposed on real estate, determined by the value of the property you own. These taxes are usually assessed annually and are used to fund local services, like public schools, roads, police, fire departments, or other community needs. The amount you pay is determined by multiplying the assessed value of your property by the local tax rate, also known as the mill rate. Generally, the assessed value is set by the county or municipal tax assessor. It can vary depending on factors like property size, location, and improvements made to the property.

    Property taxes can often increase or decrease based on changes in the real estate market or updates to local tax laws. Homeowners may also be eligible for certain exemptions or deductions, like homestead exemptions, which can lower the taxable value of their property. Additionally, property taxes are an important consideration for those exploring the tax benefits of real estate investing, as they can impact investment returns and cash flow. Understanding how property taxes work in your area allows you to better plan for future costs and make informed decisions about your real estate investments.

    How Are Property Taxes Determined?

    Property taxes are calculated based on three key factors: the state tax rate, the assessment ratio, and the property’s assessed value. Local and state governments set the state tax rate, which varies widely depending on the area. Some states have higher rates to fund public services, while others keep property taxes low to attract residents and businesses.

    3 key factors that determine property taxes

    The assessment ratio determines what portion of a property’s value is subject to taxation. While some states tax 100% of a property’s assessed value, others only tax a percentage. Local tax assessors evaluate properties periodically to determine their assessed value based on factors like market conditions, property size, location, and improvements. If property values rise, taxes may increase accordingly, even if the tax rate stays the same.

    Understanding property tax assessments is crucial for homeowners and investors, especially when considering potential tax liabilities such as the capital gains tax on real estate when selling a property. Knowing how property values are assessed and taxed helps property owners plan for costs and explore potential exemptions or deductions that may reduce their tax burden.

    Property Taxes By State

    Property tax rates vary significantly across the United States, with some states offering lower rates to attract homeowners and businesses while others impose higher taxes to fund public services. Below is a breakdown of property tax rates by state to help you understand how much you might pay depending on where you live or plan to buy property.

    States With the Highest Property Taxes

    Property tax rates vary significantly across the United States, with some states imposing higher rates to fund public services and infrastructure. Below are the top three states with the highest property tax rates in the US, along with their average home values and estimated annual property taxes:

    • New Jersey
      • Effective property tax rate: 2.23%
      • Average home value: $542,608
      • Average annual property tax: Approximately $12,100

    New Jersey consistently ranks top for property tax rates, resulting in substantial annual tax bills for homeowners. While these taxes fund essential local services, they significantly impact the overall cost of homeownership.

    • Illinois
      • Effective property tax rate: 2.07%
      • Average home value: $267,229
      • Average annual property tax: Approximately $5,531

    Illinois homeowners face high property tax rates, which contribute to public education funding and local government services. The combination of elevated tax rates and moderate home values creates a significant tax burden for residents.

    • Connecticut
      • Effective property tax rate: 1.92%
      • Average home value: $407,391
      • Average annual property tax: Approximately $7,820

    Connecticut’s property tax rates are among the highest in the nation, leading to considerable annual expenses for homeowners. These taxes are a primary funding source for municipal services and public schools.

    For homeowners in these states, the high property tax rates underscore the importance of exploring potential tax relief options. One such option is the property tax deduction, which allows taxpayers to deduct state and local property taxes from their federal taxable income, potentially reducing their overall tax liability. Consulting with a tax professional can help determine your eligibility and maximize available deductions.

    States With the Lowest Property Taxes

    Property tax rates vary significantly across the United States, with some states offering notably lower rates. These states are often considered tax haven states, attracting homeowners seeking to minimize their tax burden. Below are the top three states with the lowest property tax rates, along with their average home values and estimated annual property taxes:

    • Hawaii
      • Effective property tax rate: 0.27%
      • Average home value: $840,256
      • Average annual property tax: Approximately $2,269

    Despite having the lowest property tax rate in the nation, Hawaii’s high average home values result in moderate annual property tax payments. This combination makes Hawaii appealing to those seeking a tax haven, though the overall cost of homeownership remains influenced by property values.

    • Alabama
      • Effective property tax rate: 0.38%
      • Average home value: $225,539
      • Average annual property tax: Approximately $857

    Alabama’s combination of low property tax rates and affordable home prices leads to some of the lowest property tax bills in the nation. This affordability contributes to its reputation as a tax haven state, attracting homeowners looking for lower overall housing costs.

    • Colorado
      • Effective property tax rate: 0.49%
      • Average home value: $546,004
      • Average annual property tax: Approximately $2,675

    Colorado offers a low property tax rate, and while its average home values are higher than those in Alabama, the resulting property tax payments remain relatively modest. This balance enhances Colorado’s appeal as a tax-friendly state for homeowners.

    A blue sticky note with “Property Tax” written on it beside a green sticky note with a house drawn on it sitting near stacks of hundred dollar bills.

    Explore Your Home Buying Options

    Understanding property taxes is crucial when purchasing a home. Securing the right financing is just as important, and Griffin Funding is here to help. Whether you’re a first-time buyer, a real estate investor, or need flexible lending solutions, we offer various mortgage options tailored to your needs, including non-QM mortgages.

    With the Griffin Gold app, you can conveniently manage your mortgage, track payments, and access exclusive benefits—all in one place. If you’re ready to explore your home financing options, connect with Griffin Funding today and find the right loan for your goals.

    Find the best loan for you. Reach out today!

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    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 23 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 11 years in business.