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A property’s price tag only tells part of the story. In the U.S., local property taxes can impact your investment returns more than you might expect.
In fact, property taxes can be one of the most confusing parts of owning U.S. real estate. Every state (and sometimes each county within the state) has its own rules and rates. Add in differences between assessed and market values, and it’s easy to see why calculating true returns can get complicated.
This guide is designed to help you understand how property taxes work in the U.S. You’ll learn how property taxes affect your mortgage and where you can find the lowest tax rates across the U.S., so you can make a sound investment decision that works for you.
Property taxes are local taxes imposed by counties, cities, and school districts to finance essential public services, such as roads, police and fire departments, education, and libraries.
In most U.S. states, your annual property tax bill is based on your property’s assessed value, which is determined by a local assessor and then multiplied by the mill rate (the tax rate per $1,000 of assessed value). For example, if your property’s assessed value is $300,000 and the local mill rate is 20, your annual property tax would be: $300,000 ÷ 1,000 × 20 = $6,000.
Assessed value isn’t always the same as market value, or the price a property would sell for today. Some jurisdictions assess properties at a percentage of market value (for example, 80%), which can cause effective tax rates to differ from what’s listed on paper.
When you buy a new property, a reassessment may happen to match the assessed value with the recent sale price. That’s why it’s a good idea to ask your agent or lender for estimated post-purchase tax rates when you're preparing cash flow projections.
For investors using financing, property taxes are typically included in your monthly mortgage payment through an escrow account. This means your lender collects a portion of your yearly tax bill each month and pays it on your behalf when it’s due.
It’s important to remember that owner-occupants pay a different property tax rate than investors. This is because owners who reside in their purchased home usually qualify for exemptions that lower their tax liability. Investment properties generally do not qualify for these exemptions. Be sure to consider the full assessed tax amount when calculating your potential returns.
While property taxes shouldn’t be the only factor influencing your investment decisions, they can significantly impact your net yield and cash flow. Here are some ways investors strategically use property tax data:
While property tax rates vary even within states, the following regions consistently rank among the lowest nationwide, according to recent data from the Tax Foundation.
Hawaii has the nation’s lowest average property tax rate, though higher home values (which average $826,575) offset the savings. For investors, this means that while total dollar amounts may still be substantial, the rate itself keeps carrying costs relatively low, particularly on smaller or mid-range properties.
Alabama offers both low tax rates and affordable property prices. The average property in Alabama costs $232,781, making it a popular state for investors seeking long-term cash flow. Coastal counties like Baldwin and Mobile are popular for their affordable prices for investors and high rental demand.
With low property taxes and a growing population, South Carolina attracts investors looking for affordable coastal or suburban rentals. The average property price is $302,294, and in cities like Charleston and Greenville, investors enjoy steady rent growth with favorable tax conditions.
Utah’s steady population growth and relatively low tax rates make it a strong investment environment. The state’s consistent job growth helps maintain occupancy and rent stability across markets like Salt Lake City and Provo, where you can buy property for $559,794 and $476,266, respectively.Â
Low purchase prices (averaging $170,604) and minimal taxes make West Virginia an attractive option for cash-flow investors. Many areas near the Virginia and Maryland borders see steady rental demand as commuters to Washington, D.C. seek affordable housing.
Nevada limits annual tax increases, creating a stable environment for investors. While home prices have risen in Las Vegas and Reno, and the statewide average is $445,669, the state’s overall tax burden remains one of the lowest in the nation.
Delaware’s small size and efficient tax system help keep rates low across the state. Property reassessments are infrequent, offering predictability for investors focused on long-term holds. Plus, Delaware real estate is moderately priced, with an average price of $398,669.
Colorado’s property taxes remain modest compared to many U.S. states, supported by consistent state-level limits on assessment growth and mill levies. Combined with a strong job market, steady population growth, and property prices of $540,183, Colorado offers investors a balanced environment for long-term stability and potential returns.
Louisiana’s parishes (counties) have some of the lowest effective tax rates in the U.S. In addition to low property taxes, investors benefit from affordable property prices. This is particularly true in larger cities like Baton Rouge and Lafayette, where average home prices fetch $227,534 and $220,383, respectively.
Wyoming’s low property taxes and absence of state income tax make the state highly attractive to international investors. The average property price is $360,352, and the state also benefits from strong energy and tourism sectors that help support consistent local economies.
Whether you’re purchasing a short-term rental or a long-term income property, understanding property taxes is key to building a sustainable investment strategy. Factoring in property taxes early can help you choose the right markets and financing structure for your goals. With Waltz, you can invest confidently across over 40 states.
Ready to start your U.S. real estate journey? Here's how to get started.
Which state currently has the highest property tax rate?
Illinois has the highest average property tax rate in the country at 1.83%, followed closely by New Jersey and Connecticut.
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‍How often do property taxes change or increase?
The frequency of reassessment varies widely. Many states require reassessment every one to five years, while others may have longer intervals or only reassess when a property changes hands. Keep in mind that reassessment of value does not always mean the tax rate will increase, and in some jurisdictions, there are statutory caps or freezes on assessment increases or mill-rate increases.
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Can property owners challenge or appeal their property tax assessment?
Yes. Most counties allow property owners to appeal their assessment if they believe the value is too high compared to similar properties.
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Are property taxes included in a monthly mortgage payment?
Yes, most lenders collect property taxes monthly through an escrow account and pay them on your behalf when due.
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What happens if you don’t pay property taxes?
Unpaid property taxes can result in penalties, liens, or even foreclosure by the local government.
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Do local municipalities set their own property tax rates?
Yes. Counties, cities, and school districts all play a role in determining your total property tax rate.
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How is assessed value determined, and how does it affect taxes?
Local assessors calculate assessed value using recent sales, property condition, and location. A higher assessed value results in higher taxes.
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Can property taxes affect the amount a lender will approve for a mortgage?
Yes. Lenders include estimated property taxes in your DSCR, which can affect the size of the loan you qualify for.
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