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As we all know, property tax is an annual or semiannual charge levied by a local government and paid by the owners (viz. individuals or legal entities) on the following within its jurisdiction:
| Type of Property | Immovable Property | Moveable Property |
| Also known as | Real Property | Tangible Personal Property |
| Examples | Land, buildings, & structures | Vehicles, including boats & campers, furniture, and Industrial equipment |
| Type of Tax | Real Estate Tax | Personal Property Tax |
Property tax rates and the types of properties taxed vary by jurisdiction.
Fun Fact: Real Estate Tax and Property tax are often mistakenly used interchangeably, with the former levied solely on real property, while property taxes can encompass both real property and tangible personal property.
Real estate investing can be a rewarding, long-term investment. A few reasons for the growing popularity of real estate investment in the US are:
Bricks & Mortar Profits: Owning property offers potential rental income and value appreciation.
Hedge Against Inflation: Real estate can retain its value as inflation rises.
Leveraged Investment: Investors can use mortgages to leverage their investments and magnify their potential returns.
Tax Benefits: Property ownership may qualify for tax deductions on certain expenses.
Rising Rental Demand: Around 320,000 homes valued at up to $256,000 are needed to meet the needs of homebuyers, according to a 2023 National Association of Realtors analysis.
Now let’s take a look at a few instances of how property taxes impact investment returns across different asset types:
Real Estate: Lower property taxes mean more rental income and potentially higher long-term appreciation.
Business Equipment & Furniture: Property taxes can reduce depreciation benefits and increase operating costs.
Vehicles: Annual property taxes add to ownership costs and might outweigh depreciation advantages.
This is not an exhaustive list, and specific tax implications can vary depending on the asset type, location, and tax laws.
| Serial No. | State | Average Effective Property Tax Rate | Median Home Price | Appreciation Potential | Property Tax Structure | Rental Demand | Landlord-Tenant Laws | Market Trends |
| 1 | Hawaii | 0.29% | High | Moderate | Simple structure with a flat rate applied to the assessed value | High | Relatively tenant- friendly | Slow population growth and a strong job market in tourism and service sectors |
| 2 | Alabama | 0.43% | Low | Moderate | Complex structure with varying rates based on location and property class | Moderate | Generally, Generally landlord- friendly | Slow population growth, improving job market in manufacturing and healthcare |
| 3 | Colorado | 0.52% | Above National Average | High | Limitation on assessed property value growth | High | Balanced | Strong population growth, driven by outdoor recreation and thriving tech industry |
| 4 | Nevada | 0.55% | Varies by Location | Moderate to High | Flat rate with a separate levy for schools | High in popular areas | Generally, landlord- friendly | Strong population growth in Las Vegas and Reno, driven by tourism and entertainment industries |
| 5 | Utah | 0.57% | Above National Average | High | Tiered structure based on property value | High | Balanced | Very strong population growth, driven by booming tech industry and high quality of life |
| 6 | South Carolina | 0.53% | Below National Average | Moderate to High | Complex structure with a base rate and additional local levies | Steady | Leans slightly tenant- friendly | Moderate population growth, strong job market in tourism and manufacturing |
| 7 | Louisiana | 0.51% | Well Below the National Average | Moderate | Complex structure with varying rates based on location and property class | Moderate | Generally, landlord- friendly | Slow population growth, improving job market in energy and healthcare |
| 8 | District of Columbia | 0.59% | Very High | Moderate | Flat rate with additional levies for education | Extremely High | Balanced | Strong population growth is driven by the booming job market |
| 9 | Wyoming | 0.61% | Below National Average | Low | Relatively simple structure with a flat rate applied to the assessed value | Low | Generally, landlord- friendly | Very slow population growth, limited job market outside of natural resources industries |
| 10 | Delaware | 0.59% | Slightly Above the National Average | Moderate | Complex structure with varying rates based on location and property class | Steady | Balanced | Moderate population growth is driven by the growing financial services industry |
| 11 | Arizona | 0.60% | Below National Average | Moderate | Complex structure with varying rates based on location and property class | Moderate to High | Generally, landlord- friendly | Moderate population growth, strong job market in tourism and retirement sectors |
| 12 | Idaho | 0.63% | Below National Average | Moderate | Complex structure with varying rates based on location and property class | Moderate | Landlord - friendly | Moderate population growth, job market growth in tech and agriculture |
| 13 | Tennessee | 0.65% | Below National Average | Moderate | Complex structure with varying rates based on location and property class | Moderate to High | Generally, landlord- friendly | Moderate population growth, strong job market in manufacturing and healthcare |
| 14 | Arkansas | 0.66% | Below National Average | Moderate | Complex structure with varying rates based on location and property class | Moderate | Generally, landlord- friendly | Slow population growth, improving job market in manufacturing and retail |
| 15 | North Carolina | 0.80% | Below National Average | Moderate | Complex structure with a base rate and additional local levies | Moderate to High | Balanced | Moderate population growth, strong job market in finance and research |
Low property taxes are undeniably attractive for investors, offering a potential boost to returns across various asset classes. However, successful investing requires a holistic approach, taking into account factors beyond just tax rates, which include:
High costs of living can eat into rental income and potential profits.
Stricter regulations for landlords impact management and potential repair tasks.
Additional fees associated with investment properties, like licensing or inspections.
In short, a holistic approach ensures you consider all the factors that affect your investment's success, not just a single metric like property taxes.
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Jason Dinesen (LPA, EA) is an entrepreneur, tax expert, and CPE Presenter. Dinesen brings over 15 years of experience helping individuals and businesses with accounting, bookkeeping, tax preparation, and business advisory in various industries. Dinesen is a regular CPE Presenter at MYCPE ONE. He has coached more than 200k+ accounting, taxes, and HR professionals on various topics of accounting, individual taxation, corporate taxation, and professional ethics. Jason has developed a strong following within the professional community for tax-related subjects. Dinesen is known for sharp tax interpretations, and he quickly brings his analysis of the latest tax updates and IRS guidance to the professional community.
Jason Dinesen
Jason Dinesen
