Property Tax Rates

Property taxes — levied by local governments (counties, cities, school districts, and special districts) on the assessed value of real estate — are the largest single revenue source for local government in the United States, generating approximately $700 billion/year and funding roughly 40% of K-12 public school budgets, local police and fire services, and county government operations. There is no federal property tax; the federal connection is 26 U.S.C. § 164, which allows taxpayers who itemize to deduct state and local taxes including property taxes — a deduction capped at $10,000/year by the TCJA (2017) for the combined total of property taxes plus state income or sales taxes. The national average effective property tax rate is approximately 0.9–1.1% of assessed value, but rates vary dramatically: Hawaii (0.27%) and Alabama (0.37%) are the lowest; New Jersey (2.33%), Illinois (2.07%), and Connecticut (1.79%) are the highest — differences that translate to thousands of dollars in annual tax for identical homes in different locations. Most states assess property at full market value or a fixed fraction (60%, 80%, etc.) of market value; in California, Proposition 13 (1978) caps assessed value increases at 2%/year until sale, creating enormous disparities between longtime owners (paying on 1980s values) and recent buyers (paying on current market values). Property tax exemptions — for homesteads, seniors, veterans, and agricultural land — reduce effective rates for qualifying owners and are a critical tool for affordability and keeping long-term residents in their homes.

Current Law (2026)

Property taxes are levied by local governments (counties, cities, school districts, special districts) on the assessed value of real property. There is no federal property tax.

Legal Authority

• State constitutions and statutes — Each state authorizes local property taxation
• No federal property tax — Property taxation is exclusively state/local
• 26 U.S.C. § 164 — Deduction for taxes (allows itemized deduction of state and local property taxes on federal returns, subject to the current federal SALT cap for personal itemizers)

How It Works

Your property tax bill is the product of two numbers multiplied together: the assessed value and the millage rate (tax rate). Assessed value is the county or local assessor's estimate of your property's market value, often set as a percentage of true fair market value — some states assess at 100% of FMV, others at 80%, 60%, or lower fractions. Assessment frequency varies: some jurisdictions reassess annually, others every two or three years, and some only reassess on sale. Millage rates are expressed as a dollar amount per $1,000 of assessed value — 15 mills means $15 for every $1,000 of assessed value, or $6,000 on a $400,000 assessment. Multiple jurisdictions layer their own millage rates on the same property: the county, municipality, school district, library district, and fire district each set independent rates, and the total millage is their sum. This stacking is why effective property tax rates vary dramatically even within the same city depending on school district boundaries.

Most states reduce the assessed value for primary residences through homestead exemptions before applying the millage rate. Florida's homestead exemption is $25,000 on assessed value, with an additional $25,000 exemption (for all taxes except school levies) for value between $50,000 and $75,000. Texas's exemption is $100,000 for school district taxes on a homestead, with additional exemptions for seniors and disabled homeowners. These exemptions directly reduce the tax base — a $25,000 exemption at 20 mills saves $500/year. Many states also impose assessment caps that limit how fast a property's assessed value can rise regardless of market appreciation: California's Proposition 13 caps annual assessed value increases at 2% (until the property sells), and Florida's Save Our Homes amendment caps increases at 3% or CPI, whichever is lower. These caps create significant disparities between long-term owners (who may pay taxes on a 1995 assessed value) and recent buyers (who pay on current market value), and they shift tax burden onto new buyers and commercial properties without caps.

When you believe your assessed value overstates your property's actual market value, you have the right to appeal the assessment — typically through an informal review with the assessor's office, then a formal appeal to a local review board, and in some jurisdictions further appeal to tax court. Success rates vary significantly by jurisdiction but commonly run 30–50% when the owner presents solid comparable sales data. Professional property tax consultants and attorneys routinely handle appeals on contingency for commercial properties; homeowners can often file appeals themselves with recent comparable sales from Zillow or the county's own sales records. Unpaid property taxes accrue interest (rates vary by state, often 10–18% annually) and can result in a tax lien placed on the property — which has priority over virtually all other liens including mortgages. Some jurisdictions sell tax liens to private investors; others proceed directly to tax sale auction. The timeline from delinquency to losing a property varies from 1–5 years by state, but the process is unforgiving once initiated.

Federal Interaction (SALT Cap)

Property taxes on a personal residence are deductible on federal returns as part of the SALT deduction, subject to the current federal cap. For homeowners in high-property-tax states, property tax alone may exceed much or all of that limit. Rental and business property taxes are generally deducted under business rules rather than the personal SALT cap. See SALT Deduction Cap.

How It Affects You

If you're buying a home and comparing locations: Property tax is a recurring, unavoidable cost that doesn't decrease with time (unless you're in an assessment-cap state and stay put). The geographic spread is enormous, and it should be modeled alongside state income tax rates and the mortgage interest deduction when comparing total housing cost. A $400,000 home in New Jersey at the 2.23% effective rate costs $8,920/year ($743/month) in property taxes. The same $400,000 home in Hawaii at 0.27% costs $1,080/year ($90/month) — an $8,000/year difference on the same purchase price. Texas, despite having no state income tax, has property tax effective rates around 1.6% — a $400,000 home costs approximately $6,400/year. Property tax belongs in every location comparison alongside income tax rates, home prices, and insurance costs. Use the county assessor's website to verify the current rate for specific addresses before buying.

If you're a long-term homeowner in California, Florida, or another assessment-cap state: California's Proposition 13 limits assessment increases to 2%/year regardless of market appreciation. A homeowner who bought in 2005 at $400,000 may have an assessed value around $580,000 today while market value exceeds $1,000,000 — paying property taxes on well below half the current value. If you move, you lose this savings unless you're 55+ and can transfer the base to a new home under Proposition 19. This lock-in effect is one reason California homeowners resist selling even when they want to downsize — the property tax increase from losing the Prop 13 base can cost $10,000-$20,000/year more in taxes after a move.

If you're a homeowner who hasn't checked your assessment in several years: Property assessments may not match current market value, and you have the right to appeal. If home prices in your area have declined since your last assessment, or if your assessment is higher than comparable recently-sold homes, you may be overpaying. The appeal window is typically 30-90 days after the assessment notice — check your county assessor's office for the deadline. Many jurisdictions have online tools to compare your assessment to neighboring sales. In markets where home values dropped in 2023-2024, appeals have been successful for a significant percentage of challenging homeowners. There is usually no cost to file an appeal.

If you own rental or investment property: Property taxes on rental and investment property are deducted as a business expense on Schedule E (not Schedule A) and are NOT subject to the SALT deduction cap that applies to personal residences. A landlord with $15,000/year in property taxes on rental properties deducts the full amount against rental income — no $40,400 cap, no itemization required. This deduction flows through to reduce net rental income, which is then subject to ordinary income tax rates (and potentially the net investment income tax if passive). For high-property-tax states like New Jersey or Illinois, the full deductibility of investment property taxes makes rental ownership more tax-efficient than primary residence ownership from a federal tax perspective.

State Variations (Effective Rates)

Highest effective rates: NJ (2.23%), IL (2.08%), CT (2.00%), NH (1.93%), VT (1.83%)

Lowest effective rates: HI (0.27%), AL (0.39%), CO (0.49%), WV (0.51%), SC (0.55%)

Assessment caps: CA (Prop 13, 2%), FL (3% Save Our Homes), MI (lesser of 5% or inflation), OR (3% Measure 50), AZ (5%)

Homestead exemptions: TX ($100K for school taxes), FL ($50K), LA ($75K), GA ($2K from assessed value)

Implementing Regulations

Property taxes are exclusively state and local. No federal CFR regulations apply. Federal interaction is limited to 26 CFR Part 1 (§ 1.164-1 — deductibility of state and local property taxes under current federal itemized-deduction rules).

Pending Legislation

• Federal SALT interaction: The SALT deduction remains the most relevant federal issue for many homeowners paying large property tax bills. See SALT Deduction Cap.
• State-level relief: Many states continuously debate property tax relief — freezes, caps, circuit breakers, and exemptions are active in nearly every state legislature.

Recent Developments

• SALT cap raised to $40,400 for 2026 — property tax deductibility significantly expanded: The One Big Beautiful Bill Act (2025) raised the SALT deduction cap from $10,000 to $40,400 for tax year 2026, with a phase-down for taxpayers above $505,000 MAGI. For homeowners in high-property-tax states (NJ, IL, CT, NH), property taxes alone can run $10,000–$25,000/year — amounts that previously exceeded the $10,000 cap entirely. The expanded cap means many of these homeowners can now deduct a meaningful portion of their property taxes again, reversing one of the most contested provisions of the 2017 TCJA.
• Home price appreciation has compounded property tax burdens: Home values in many metro areas increased 30-50% from 2020-2023. In jurisdictions with frequent reassessments, property tax bills have followed. States without Prop-13-style assessment caps have seen property tax bills rise sharply even without any increase in the millage rate. Texas, which has no income tax but relatively high property tax rates (~1.6% effective), has seen annual property tax bills on median homes approach $5,000-$7,000 in major metro areas.
• Texas Proposition 4 (2023) — largest property tax cut in state history: Texas voters approved $18 billion in property tax relief in November 2023, funded by a state surplus. The measures included: raising the homestead exemption from $40,000 to $100,000 for school taxes; capping appraisal increases at 20% for non-homestead properties; creating a new "franchise" business property tax compression. Texas homeowners with a $300,000 assessed value saw school tax bills drop by approximately $1,300/year.
• Florida "Save Our Homes" portability widely used: Florida's 3%/year assessment cap (Save Our Homes) creates large disparities between long-term owners and recent buyers. A homeowner who bought in 2005 may be assessed at 40-50% of current market value. The "portability" provision allows homeowners who move within Florida to transfer their accumulated savings cap to a new home. As Florida's population has grown, this portability feature has become significant for retirees and workers moving within the state.
• Property tax appeals are underused: In most jurisdictions, property owners can appeal their assessment if they believe the assessed value exceeds market value. Appeal success rates vary — in some counties, 50%+ of residential appeals result in reductions. The window to file is typically 30-90 days after the assessment notice. With rapid home price changes since 2020, some assessments lag market corrections (if values dropped in your area) or outpace them (if values rose faster than the assessment cycle). This is worth checking every reassessment cycle.