Americans searching for a home have a number of weighty issues on their plates right now. One of which is the overall cost of a home, which has risen substantially over the last few years. In June 2020, the median existing home price was $295,300 in the U.S. - but as of June 2023, the median home price hit $410,200, the second-highest number on record, according to the National Association of Realtors.
That sharp rise in home prices significantly changes the math to come up with a down payment, not to mention those monthly mortgage payments. And don't forget the impact of rising interest rates, either, as the Fed has now hiked its benchmark lending rate to the highest level since January 2001.
Plus, homeowners need to consider another variable cost - the recurring payment of property taxes, which can range widely depending upon location. Today, we're going to look at the states that charge the most in property taxes.
Why we pay property taxes
First, a quick explainer on these fees. While all U.S. states (and Washington, D.C.) charge property taxes, the amounts levied will vary from one location to another. This is because each state needs these taxes to help fund their individual communities, and needs vary. For example, a warmer climate may not need as much recurring road work compared to a state with harsh winters. That's why property taxes can range from a small inconvenience to a large burden on your annual budget.
And if you think renting will get you out of property taxes, think again. These taxes are taken into consideration when creating rental pricing. So whether it's a direct payment, or indirectly through rent, all Americans have some sort of property tax payment baked into their housing budget.
And those payments have increased significantly over the years. During the first quarter of 2023, property taxes increased by 3.5% year-over-year, according to the United States Census Bureau. So it's important to take these expenses into consideration when creating a home budget, and to consider how these taxes could increase.
What are property taxes?
This leads into how property taxes are calculated in the first place. Real estate owners pay the taxes to a county or local tax authority, with the amount due based on the assessed value of their home. This is an important point, as an assessed value is usually lower than what Americans end up paying for a home.
The tax itself varies depending on your local property tax rate. In some municipalities, a mill levy is used. One mill is equal to $1 in property tax for every $1,000 of assessed value. So if a home is assessed at $250,000, the property tax would come to $250. It's worth pointing out that different localities will reassess home values on varying schedules, so the assessed value may not reflect the most current or up-to-date home prices in your area.
That being said, here's a look at the states that levy the highest property taxes, along with an idea of what the typical resident might be paying for their property tax bill.
5 states with the highest property taxes
To determine the five states with the highest property taxes, the most recent rates were pulled from Tax-Rates.org. In descending order, the top 5 are New Jersey, New Hampshire, Illinois, Connecticut, and Vermont. To calculate a typical annual property tax bill, data on average home values for each state was pulled from Zillow.
| Ranking | State | Property Tax Rate | Average Home Value | Annual Property Taxes |
| 1 | New Jersey | 1.89% | $484,467 | $9,156.43 |
| 2 | New Hampshire | 1.86% | $446,439 | $8,303.77 |
| 3 | Illinois | 1.73% | $250,542 | $4,334.38 |
| 4 | Connecticut | 1.63% | $374,599 | $6,105.96 |
| 5 | Vermont | 1.59% | $380,266 | $6,046.23 |
As you can see, a higher state tax rate doesn't necessarily translate to a higher average property tax bill. Even though Illinois has a steeper tax rate than Connecticut or Vermont, the annual property tax amount is lower, based on the lower average home value.
Property taxes can be a burden for homeowners, especially those who are on a fixed or lower income. However, they are an important source of revenue for local governments. By understanding how property taxes work, you can make informed decisions about how to lower your own property tax bill.
On the date of publication, Amy Legate-Wolfe did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
