Last Updated: January 2024
A rental property’s location can greatly influence it’s property tax rates and financial profitability. These rental real estate taxes can vary widely from state to state in the U.S. and are calculated as a percentage of the property’s value. Some states boast low rates but higher property values, while others may have high rates but more affordable real estate. Understanding these geographical variances in property tax rates is an important real estate investor tool to strategize and maximize return on investment.
5 States With Highest Property Tax Rates in US
| State | Average Effective Property Tax Rate | Median Home Value | Annual Taxes For Median Priced Home |
|---|---|---|---|
| New Jersey | 2.49% | $355,700 | $8,797 |
| Illinois | 2.27% | $324,408 | $7,364 |
| New Hampshire | 2.18% | $288,700 | $6,294 |
| Connecticut | 2.14% | $286,700 | $6,136 |
| Vermont | 1.90% | $240,600 | $4,750 |
5 States With Lowest Property Tax Rates in US
| State Rate | Average Effective Property Tax Rate | Median Home Value | Annual Taxes For Median Priced Home |
|---|---|---|---|
| Hawaii | 0.28% | $662,100 | $1,893 |
| Alabama | 0.41% | $157,100 | $646 |
| Colorado | 0.51% | $397,500 | $2,107 |
| Nevada | 0.55% | $315,900 | $1,736 |
| Lousiana | 0.56% | $174,000 | $983 |
2024 United States Property Tax Rates by State
| State | Average Effective Property Tax Rate |
|---|---|
| Hawaii | 0.28% |
| Alabama | 0.41% |
| Colorado | 0.51% |
| Nevada | 0.55% |
| Lousiana | 0.56% |
| South Carolina | 0.56% |
| Delaware | 0.58% |
| Utah | 0.58% |
| West Virginia | 0.59% |
| Wyoming | 0.61% |
| Arkansas | 0.62% |
| Arizona | 0.62% |
| Idaho | 0.63% |
| Tennessee | 0.66% |
| California | 0.74% |
| Mississippi | 0.79% |
| New Mexico | 0.80% |
| North Carolina | 0.80% |
| Virginia | 0.82% |
| Montana | 0.83% |
| Indiana | 0.83% |
| Kentucky | 0.85% |
| Florida | 0.86% |
| Oklahoma | 0.90% |
| Georgia | 0.90% |
| Oregon | 0.93% |
| Washington | 0.94% |
| Missouri | 0.98% |
| North Dakota | 1.00% |
| Maryland | 1.07% |
| Minnesota | 1.11% |
| Massachusetts | 1.20% |
| Alaska | 1.22% |
| South Dakota | 1.24% |
| Maine | 1.28% |
| Kansas | 1.43% |
| Michigan | 1.48% |
| Ohio | 1.53% |
| Pennsylvania | 1.53% |
| Iowa | 1.57% |
| Rhode Island | 1.63% |
| New York | 1.72% |
| Nebraska | 1.73% |
| Texas | 1.80% |
| Wisconsin | 1.85% |
| Vermont | 1.90% |
| Connecticut | 2.14% |
| New Hampshire | 2.18% |
| Illinois | 2.27% |
| New Jersey | 2.49% |
Rental Property Tax Rate Calculation Example
Let’s consider the following example to illustrate how property tax rates work. Suppose you have invested in a rental property in a locality where the property tax rate is 1.5%. The local government assesses the value of your property (referred to as the “assessed value”) to be $300,000. To calculate your annual property tax, you would multiply the assessed value of your property by the tax rate:
$300,000 (Assessed Value) * 1.5/100 (Tax Rate) = $4,500
Therefore, in this example, your annual property tax would be $4,500.
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Rental Property Tax Rates FAQ
How are Property Taxes Calculated for Rental Properties?
Calculating property taxes for rental properties in the United States involves assessing the property’s value and applying the local tax rate. The calculation of property taxes for rental properties in the United States typically involves the following steps:
- Assessment of Property Value: Local tax authorities assess the value of the rental property, often conducted by a county or city assessor’s office. The assessed value is an estimation of the property’s fair market value, which may consider factors such as property size, location, and condition. This assessment value is what will be used as the basis to calculate taxes due when selling the property.
- Determination of Tax Rate: After the assessed value is established, local governments set a tax rate based on their budgetary needs. The tax rate is usually expressed as a percentage or millage rate applied to the assessed value.
- Calculation of Property Tax: The property tax is calculated by multiplying the assessed value of the rental property by the tax rate. For example, if the assessed value is $200,000 and the tax rate is 1%, the property tax would be $2,000 per year. Unlike rental income, there are no deductions allowed in property taxes, however, there are exemptions where applicable.
Do Rental Properties Pay More in Property Taxes?
The property tax rates for rental properties are generally the same as those for owner-occupied properties in most jurisdictions within the United States. However, the assessed value of rental properties may differ from owner-occupied properties, which can affect the actual tax amount. Factors such as property type, location, and local regulations can influence the specific property tax obligations for rental properties. Conversely, investment properties can benefit from tax reducing strategies such as 1031 exchanges, opportunity zones, and cost segregation studies.
Does the Federal Government Charge Property Taxes?
No, the federal government does not directly impose property taxes on rental properties or any other types of real estate. Property taxes are primarily levied by local governments, such as counties, cities, school districts, and special districts.
What States Have No State Property Tax?
Unfortunately, there are no states within the United States that completely eliminate property taxes for rental properties. However, some states have lower property tax rates or offer exemptions or credits for certain types of properties or property owners.
Do Tenants Pay Property Taxes?
Tenants typically do not directly pay property taxes. Property taxes are usually the responsibility of the property owner or landlord. The only exception is in triple net (NNN) commercial real estate leases where the tenants agree to pay the property taxes.The property owner may incorporate the anticipated property tax expenses into the rental price to cover these costs, but the actual payment and responsibility for property taxes rest with the property owner.
About the Author
Ryan Nelson
I’m an investor, real estate developer, and property manager with hands-on experience in all types of real estate from single family homes up to hundreds of thousands of square feet of commercial real estate. RentalRealEstate is my mission to create the ultimate real estate investor platform for expert resources, reviews and tools. Learn more about my story.
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