Buyer Beware: These 10 States Have the Highest Property Tax in the Nation

You can reduce your property tax bill by moving -- but maybe not if you move to one of these states.

When shopping for a new home, it's easy to get distracted with the size of your mortgage, but it's important not to forget another major cost: taxes. Putting the "T" in PITI, your property taxes can add up to hundreds of dollars a month on top of your other real estate costs.

Whether you own a closet-sized condo in the city or a massive chalet in the mountains, you're going to be paying property taxes. Indeed, even if you've paid off your entire mortgage loan and own your house outright -- you're still going to be paying those taxes.

How property taxes work

Unfortunately, figuring out what your property taxes will be each year isn't easy. It varies not only by state but by county, and it can change from year to year based on the needs of your community and your home's value.

Your real estate taxes are charged as a function of your home's value. This isn't from your last appraisal; instead, it's based on the assessed value, which is determined by your local government. When your property value increases, you'll likely see an increase in your property taxes, especially in areas that use market value to determine an assessed value.

Rather than a single flat rate, however, property taxes are essentially a collection of several different taxes for various services provided by your local and state governments. For example, you property taxes might include separate rates for:

• Fire service
• Public libraries
• City garbage
• Local schools
• County management
• Public parks

The amount needed for each type of service can vary each year, which can make your taxes rise or fall. When you receive your property tax bill, it will typically include line items describing where each part of your taxes will go. When you add up the rates for each individual service, the total is your effective property tax rate (sometimes called a mill rate).

States with the highest effective rates

While effective property tax rates can vary wildly from municipality to municipality, you can get a broad idea of the costs you might see when you move by looking at state averages. Here's a look at the 10 states with the highest effective property tax rates as a percentage of home value:

1. New Jersey: 2.13%
2. Illinois: 1.97%
3. New Hampshire: 1.89%
4. Vermont: 1.76%
5. Connecticut: 1.73%
6. Texas: 1.60%
7. Nebraska: 1.54%
8. Wisconsin: 1.53%
9. Ohio: 1.52%
10. Iowa: 1.43%

For comparison, the average effective rate in 2020 was 1.1%. This puts a few states on the list at more than twice the national average. Of course, that doesn't mean that every municipality in the state will charge the same rates; some areas may charge more, while others will have much lower rates.

Ways to reduce your property taxes

The two factors that go into your property taxes are the effective tax rate, which is set by the government, and your assessed home value. Since you'll have a hard time getting the government to change your rates, the only real way you can impact your property taxes is through your home's assessed value.

More specifically, some areas may allow you to appeal your assessed value if you feel it isn't accurate. You'll need to provide some sort of proof that your home was assessed too high in order to lower the assessed value and thus reduce your tax rate.

The most straightforward way to prove an overestimated value is by getting your own appraisal. While a small difference between the assessed value and the property appraisal may be disregarded, if your house appraises for much lower than it was assessed, you may have a case.

In the end, residential property taxes are pretty much inescapable in the United States. If you own your home, you're going to have to pay taxes on it.

That said, it's important to keep in mind that the property tax rate is hardly the entire tax story for any given state. For example, while New Hampshire might have the third highest average property tax rate, it doesn't have a state sales tax or a state income tax, so your overall tax burden may be lower than in states that charge less in property taxes.