Property taxes are the primary means for most city, town and county governments in the U.S. to fund themselves. In the past few years, escalating home values have led to rapid tax hikes, sparking an effort by state legislators to try to reduce or even eliminate property taxes. But for the most part, they remain the primary way public schools, public safety, roads and many other local services are funded.
How are taxes assessed?
To know what a property owner owes in taxes, local governments first have to assess the value of a home and the land on which it sits. This process can happen as often as annually or as infrequently as every eight years, as is the case in some North Carolina counties. Each government sets a tax rate annually and applies it to the home value to determine the tax amount. When tax assessments are rising quickly, local governments sometimes choose to lower the rate to reduce the impact for owners, or they may opt to assess properties more often so that the sting of higher bills is phased in.
The property tax is based on the value of a holding, but not necessarily all of it. Many states assess only a portion of that value, providing what’s often called a “homestead exemption” on the rest. The exemption varies by state; in recent years, many states have increased their size to help owners in the face of rapidly rising property values.
Who collects property taxes?
Cities, towns and counties usually collect taxes, but in some places, school boards, fire departments and utility commissions set their own tax rates.
In some states, a portion of the taxes that homeowners pay to their local government actually goes to the state. For example, in Kansas and New Hampshire, the state uses that money to pay part of the costs of public schools.
Typically, owners get a single tax bill, but there are exceptions. In Virginia, towns issue separate tax bills to residents from the ones they receive from county governments.
How are they paid?
People who finance their homes with a loan typically have their property tax bundled into their monthly mortgage payment. Each year after a local government sets the tax rate or after a reassessment is completed, the mortgage amount will change based on that new information. Some people who don’t have a loan pay their tax bill directly to the locality.
There are abatements for seniors, among others
It’s common for local and state governments to offer tax abatements to certain populations who qualify, such as older residents on fixed incomes or disabled veterans. Alaska exempts from taxation the first $150,000 in assessed value for the primary homes of people aged 65 or older, according to a report by the National Association of Counties. Owners typically have to apply each year for the abatement.
Weighing taxes in different states
Like other taxes, such as those on income, high property taxes can lead people to consider a move to a lower-tax state. So it’s important for people thinking of moving somewhere to measure the impact of taxes properly. The real estate data firm ATTOM looks at the effective tax rate, which is the average annual property tax as a percentage of the average estimated market value of a single-family home. In 2024, Illinois had the highest effective rate, at 1.87%, while Hawaii was at the other end of the list at 0.33%.