Key Property Tax Details for Accountants and Their Homeowner Clients

Mar 24th 2015
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Whether you’re handling clients’ tax issues or advising them on investment strategies, property taxes probably rankle most of those who are homeowners. It’s why efforts to change property taxation seem to be perennial, which AccountingWEB highlighted in an article last year. What do you—and your clients—need to know about property taxes?

For the first time, real estate analysis firm RealtyTrac has waded into the topic with a report on property tax rates nationwide for single-family homes.

“Property taxes are typically the second-biggest expense involved in homeownership other than the mortgage, and we wanted to highlight how much that was by market,” said RealtyTrac Vice President Daren Blomquist.

The report considers taxes levied in 2014 from two perspectives: average and effective taxes on single-family homes. (The effective tax rate is the average property tax in 2014 divided by the average estimated value of the homes at the end of 2014.)

Effective rates aren’t typically addressed in tax reports. Blomquist said the firm approached rates from that perspective because “we believe this is a more accurate reflection of that actual tax rate homeowners can expect to pay based on the market value of their home rather than on the tax rate provided by the assessor, which sometimes is not based fully on market value.”

Here’s the three-point takeaway:

  • Owners of homes with the highest or lowest valuation pay the highest property tax rates. The average effective property tax rate for all single-family homes nationwide in 2014 was 1.29 percent. But for homes valued at $50,000 or less, that rate was 1.68 percent. For homes between $50,000 and $100,000 in value, the rate was 1.40 percent. And at the other end of the scale, the rate was 1.56 percent for homes valued at $1 million to $2 million, and 1.77 percent for homes at $2 million to $5 million.
  • Taxpayers who have owned their homes between five and 15 years pay the highest rates. The average effective rate on homes owned for five to 10 years was 1.34 percent, and 1.35 percent for homes owned between 10 and 15 years. For homes owned less than a year, the effective rate was 1.18 percent. Owners who’ve had their homes more than 20 years had a rate of 1.15 percent.
  • The higher-valued homes account for more than half of property taxes nationwide. Single-family homes valued at more than $300,000 make up only a quarter of all single-family homes nationwide. But the property taxes on those homes account for 54 percent of property taxes nationwide. Meanwhile, homes valued at $300,000 or less make up 75 percent of all single-family homes but only 46 percent of property taxes paid nationwide.

So who’s got the highest and lowest rates?

  • Highest states: The states with the highest effective rates by percentages are New York (3.01), Texas (2.18), Illinois (2.15), Connecticut (2.11), and New Jersey (2.01). Those with the highest average property taxes in dollars are New York ($15,625), New Jersey ($8,108), New Hampshire ($5,795), Connecticut ($5,646), and Hawaii ($5,024).
  • Lowest states: By effective rates, the states were Alabama (0.40), Wyoming (0.55), Colorado (0.55), West Virginia (0.60), and Tennessee (0.64). By averages in dollars, the states were Alabama ($618), West Virginia ($931), New Mexico ($1,096), Tennessee ($1,116), and Indiana ($1,418).

Drilling down to the county level, the report shows that New York state's Westchester county leads the nation in both highest effective rate (7.53) and highest average rate ($56.124) among counties providing this data. RealtyTrac has posted a county map.

Related article:

Property Taxes: State-by-State Highlights


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