Real Estate Investing & Property Tax Rates

In the United States, property tax is assessed by local government at the municipal or county level. The property tax assessment is based on two values—the value of the land, and the value of the building. Since property tax is calculated at a local-level—and since changes occur frequently—it’s tricky to determine the exact spots where property tax is the lowest. However, the following information should help you locate areas with high appreciation AND low property taxes.

Which States Have the Lowest Property Tax Rates?

County tax rates are often averaged into a single figure, and this number is used when comparing property taxes between states. Surprisingly, Wyoming has the lowest property tax rates. Unfortunately, property values in Wyoming tend to be pretty depressed, due to low population influx and a lack of jobs. Also, Wyoming does not rank highly when it comes to appreciation rates for residential and commercial real estate. Just because an area has low property taxes does not mean it will be the best area to invest in (or relocate to).

What to Look For When Investing

Look for an area that has a consistent rate of real estate appreciation, combined with fairly low property taxes. Often, local property tax rates are low because real estate appreciation in the area is low—so you need to be careful. Cities located next to universities and areas where businesses are relocating are usually excellent spots to buy real estate. Paying attention to population growth can help you spot real estate trends and make wiser investments.

Medium-Sized Cities With the Lowest Property Tax Rates

According to data gathered by the Office of the CFO in Washington, D.C., the following cities have the lowest property tax rates in 2006, based on an annual income of $75,000. Assuming you earn $75,000 annually, here are the property tax amounts you would pay in each city…

Birmingham AL — $988 Cheyenne WY — $1,108 Phoenix AZ — $1,248 Wichita KS — $1,309 Denver CO — $1,362 Charleston WV — $1,395 Oklahoma City OK — $1,538 Kansas City, MO — $1,595 Little Rock AR — $1,648 Louisville, KY — $1,713 Jacksonville FL — $1,744 Honolulu HI — $1,781 Billings MT — $1,864 Salt Lake City, UT — $1,904 Virginia Beach VA — $1,918 Jackson MS — $1,971 Charlotte, NC — $2,021 Boise, ID — $2,176 Columbia SC — $2,214 Las Vegas NV — $2,225 Sioux Falls SD — $2,228 New Orleans, LA — $2,231 Wilmington DE — $2,416 Memphis TN — $2,501 Albuquerque NM — $2,517 Houston TX — $2,861

The Connection Between State Income Taxes & Property Tax Rates

States with no income tax (see list below) usually have high property tax rates in their respective counties (The state needs to get its revenue from somewhere!). However, the trade-off is that you will have zero taxes on all earned income. This can be a huge advantage. Instead of paying the state 7 to 15 percent (or more) of your income, you can keep your hard-earned money, and invest it back into real estate or other investments. There are currently nine states that do not tax income at the state level.

States With No Income Tax

Alaska Florida Nevada South Dakota Texas Washington Wyoming New Hampshire* Tennessee*

*New Hampshire and Tennessee do not tax earned income, but they DO tax capital gains (dividend and interest income).

How To Find the Best of Both Worlds: Low Property Tax & No State Income Tax

If you’re looking for the best of both worlds (low property tax and no state income tax), you may want to consider the following cities:

Sioux Falls, SD Houston, Texas Jacksonville, Florida Memphis, TN Cheyenne, WY Las Vegas, Nevada

You can also explore less well-known cities in the nine “no-income-tax” states. Smaller towns and cities generally offer “quality of life” advantages, and higher-than-average price appreciation and growth.

Conclusion

Now you know which states don’t tax income, and which areas have the lowest property tax rates. Armed with this knowledge, you can focus on finding the best spot for your next home or real estate investment.