Property Tax is an annual levy on real estate, calculated as a percentage of the property's assessed value. It's typically the largest source of revenue for local governments.
How It's Calculated
Property Tax = Assessed Value × Tax Rate (Mill Rate)
For example: A home assessed at $300,000 with a 1.5% rate pays $4,500/year.
State Variations
| State | Avg Effective Rate | Rank |
|---|---|---|
| New Jersey | 2.23% | Highest |
| Illinois | 2.07% | 2nd |
| New Hampshire | 1.93% | 3rd |
| Texas | 1.68% | 6th |
| Hawaii | 0.29% | Lowest |
Hidden Costs for Renters
Even if you rent, you indirectly pay property tax — landlords factor it into rent prices. High property tax states often have higher rents as a result.
No-Income-Tax Tradeoff
States like Texas have no income tax but compensate with higher property taxes. Make sure to calculate the total tax burden, not just one component.
What Buyers Should Model
When evaluating a move, estimate property tax with the local effective rate, expected reassessment behavior, and escrow impact. This often changes the true monthly housing cost by hundreds of dollars.