Free Guide to States Without Property Tax on Homes

Understanding Property Tax and Which States Have No Home Property Tax

Property tax is a yearly tax that homeowners pay based on the estimated value of their home and land. Most states use property tax as a major source of funding for schools, local governments, and public services. However, a small number of states have chosen not to collect property tax on residential homes. Currently, only two states have completely eliminated property tax on primary residences: Hawaii and Alabama.

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Hawaii abolished property tax on homes in 1895, making it the longest-standing state without residential property tax. The state instead relies on other revenue sources, including general excise tax, income tax, and tourism-related taxes. Alabama followed suit in 2013 when the state eliminated its property tax on residential property for homeowners. Both states still collect property tax on commercial properties and land used for business purposes.

Other states have created significant exemptions or reductions rather than eliminating property tax entirely. For example, Florida, Texas, South Dakota, Nevada, Washington, and Wyoming have no state income tax but still collect property tax on homes. Some states offer homestead exemptions that reduce the taxable value of a primary residence, which lowers the overall property tax bill but does not eliminate it completely.

Understanding the difference between "no property tax" and "property tax exemptions" matters when considering a move. A state with no property tax means you will not owe any property tax on your home. A state with exemptions means you may owe reduced property tax depending on your circumstances. The guide explores both categories to give you a complete picture of your options.

Practical takeaway: When researching states, confirm whether a state has eliminated property tax entirely or simply offers exemptions. Hawaii and Alabama are the only two states with no residential property tax. All other states collect some form of property tax on homes, though many offer exemptions that can lower your tax burden.

How Property Tax Works and What You Currently Pay

Property tax is calculated by taking the assessed value of your home and multiplying it by the local tax rate, often called the millage rate. For example, if your home is assessed at $300,000 and your local millage rate is 1%, you would owe $3,000 per year in property tax. The assessed value is usually determined by local assessors who examine homes in your area and estimate their market value. This assessment typically happens every few years, though some jurisdictions reassess annually.

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Property tax rates vary widely by location. According to the Tax Foundation, the national average property tax rate is approximately 0.8% of home value, but this masks significant regional differences. New Jersey has the highest average property tax rate at around 2.1% of home value, while states like Hawaii and Alabama have none. Within states, local jurisdictions can set their own rates, so a home in one county may be taxed at a different rate than an identical home in another county.

Most homeowners pay property tax through an escrow account managed by their mortgage lender. When you make your monthly mortgage payment, a portion goes toward property tax and homeowners insurance. The lender pays these bills on your behalf when they are due. If you own your home outright, you pay property tax directly to your local tax assessor's office, usually in one or two annual payments depending on your jurisdiction's schedule.

Property taxes are often deductible on your federal tax return, but this benefit has limitations. The Tax Cuts and Jobs Act of 2017 capped the deduction at $10,000 per year for state and local taxes combined, which includes property tax, state income tax, and sales tax. This means that even if you pay more than $10,000 in property taxes, you can only deduct $10,000 on your federal return. Understanding your current property tax burden helps you evaluate whether relocating to a state with lower or no property tax makes financial sense.

Practical takeaway: Calculate your annual property tax by multiplying your home's assessed value by your local millage rate. Compare this to what you would pay in potential states where you are considering moving. Remember that property tax deductions are capped at $10,000 per year for federal purposes, so the savings from moving to a low-tax state may be substantial.

States With No Income Tax and Low Property Tax as Alternatives

While only Hawaii and Alabama have no property tax, several states offer no state income tax combined with moderate property tax rates. These states can be attractive alternatives if you want to reduce your overall tax burden. Texas, Florida, Nevada, South Dakota, and Washington have no state income tax. Wyoming also has no state income tax and is often mentioned in tax discussions, though it does collect property tax.

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Texas has no state income tax and offers a homestead exemption that reduces property tax on primary residences. Homeowners can exclude up to 20% of their home's value from taxation, and the state also provides exemptions for those over 65 years old. The average property tax rate in Texas is around 1.6% of home value, which is higher than the national average but may be offset by the absence of income tax. A person earning $100,000 annually in Texas pays no state income tax, which can result in significant savings compared to higher-tax states.

Florida similarly has no state income tax and offers homestead exemptions for primary residences. The first $50,000 of your home's assessed value is exempt from taxation, with an additional $25,000 exemption for the portion between $50,000 and $75,000. This can substantially reduce property tax bills for Florida homeowners. The average property tax rate is around 0.83% of home value, making Florida one of the more affordable states for property tax.

Nevada, South Dakota, and Washington also have no state income tax and moderate property tax rates ranging from 0.6% to 0.9%. These states attract residents and businesses seeking to minimize overall tax obligations. The trade-off is that states without income tax often rely more heavily on sales tax, property tax, and other revenue sources. Some residents find that the absence of income tax more than compensates for higher property or sales taxes, depending on their income level and spending patterns.

Practical takeaway: If you earn a high income, moving to a state with no income tax can provide substantial savings even if property tax is moderate. States like Texas and Florida offer both no income tax and homestead exemptions that reduce property tax further. Calculate your total tax burden under different state scenarios to determine where you would save the most money.

Homestead Exemptions and Property Tax Reductions You Should Know About

A homestead exemption is a reduction in the taxable value of your primary residence. Instead of paying property tax on the full assessed value of your home, you pay tax on a reduced amount. Homestead exemptions exist in many states and can provide meaningful savings. For example, if your home is assessed at $300,000 and your state offers a $50,000 homestead exemption, you would only pay property tax on $250,000 of value.

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The amount of the homestead exemption varies by state. Some states offer a fixed dollar amount, such as Florida's $50,000 exemption. Others offer a percentage-based exemption, such as Texas's 20% exemption. Some states provide different exemption amounts based on age, military service, or disability status. A few states offer unlimited homestead exemptions for certain categories of residents, such as seniors or disabled veterans. Understanding your state's specific homestead exemption rules is essential for calculating your actual property tax burden.

To claim a homestead exemption, you typically must file a form with your local tax assessor's office during a designated application period. The process usually requires proof that the property is your primary residence, such as a driver's license, voter registration, or lease agreement. Some states allow you to file the homestead exemption claim at any time, while others have specific deadlines. Missing a deadline may mean waiting until the following year to receive the exemption. Your local tax assessor's office can provide information about your state's specific filing requirements and deadlines.

Some states also offer additional exemptions beyond the basic homestead exemption. Senior citizens may qualify for enhanced exemptions or tax deferrals that delay property tax payments. Disabled individuals and disabled veterans may receive special exemptions. Some states provide exemptions for agricultural land or property used for religious purposes. These specialized exemptions are layered on top of the basic homestead exemption, potentially reducing your tax bill significantly. It's worth investigating whether you might qualify for any of these additional reductions based on your age, health status, military service, or property use.