If you’re planning to buy real estate in the United States, understanding property tax is essential. Property taxes are one of the main ongoing costs of owning a home, rental property, or commercial real estate. Since rates vary widely across states, knowing how they work can save you money and help you make smarter investment decisions.
In this USA Property Tax Guide 2025, we’ll explain how property taxes are calculated, the states with the highest and lowest rates, and key tips for property investors.
What Is Property Tax?
Property tax is a tax imposed by local governments (counties, cities, or municipalities) on real estate owners. The revenue is used to fund schools, police, fire departments, road maintenance, and other public services.
Property tax is typically calculated as:
Property Tax = Assessed Value of Property × Local Tax Rate
For example:
If your home is worth $300,000 and the local tax rate is 1.2%, your annual property tax would be $3,600.
How Property Taxes Are Calculated
- Assessed Value – The government assigns a taxable value to your property (may differ from market value).
- Tax Rate (Mill Rate) – Expressed as a percentage or per $1,000 of property value.
- Exemptions/Deductions – Homeowners, veterans, and seniors may qualify for exemptions that reduce taxes.
States with the Highest Property Taxes in 2025
Some states have significantly higher property tax rates than others:
- New Jersey – ~2.2% average effective tax rate.
- Illinois – ~2.0%
- New Hampshire – ~1.9%
- Connecticut – ~1.8%
- Vermont – ~1.7%
These states typically have higher living costs but also offer better-funded public services.
States with the Lowest Property Taxes in 2025
If you’re looking to minimize ongoing costs, consider states with low property taxes:
- Hawaii – ~0.3% (lowest in the USA).
- Alabama – ~0.4%
- Colorado – ~0.5%
- Louisiana – ~0.6%
- Wyoming – ~0.6%
These states are attractive to retirees and investors seeking affordable property ownership.
Property Taxes for Foreign Investors
Foreign investors buying property in the USA must also pay property taxes. Key points:
- Taxes apply whether you live in the US or not.
- Rental income is also subject to federal and state taxes.
- Some states may offer deductions or exemptions.
Tip: Always work with a tax advisor to comply with US tax laws.
How to Lower Your Property Tax Bill
- Check your assessment – Ensure your property is not overvalued.
- Apply for exemptions – Many states offer deductions for veterans, seniors, or primary residences.
- File an appeal – If you believe your tax assessment is too high, you can request a review.
- Consider relocation – Investing in states with lower property tax rates can save thousands yearly.
Final Thoughts
Property tax is a crucial factor in real estate ownership in the United States. In 2025, rates vary from as low as 0.3% in Hawaii to more than 2.0% in New Jersey. Whether you’re buying a family home or an investment property, always calculate annual tax costs before making a purchase.
With the right planning, you can choose the best location that balances property value, tax rates, and investment returns.