Why long-term homeowners save on tax in many states

by Steve Randall18 Apr 2018

A study of state tax regimes reveals that new homebuyers are disadvantaged in many US states.

The research found that in Los Angeles for example, a new owner of a median-valued home pays around $7,000 per year in property taxes, while someone who’s owned an identical home for 14 years pays just $4,000 per year.

The annual 50-State Property Tax Comparison Study by the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence, found that of the ten American cities with the greatest discrepancy in taxes paid by new homeowners and longtime homeowners, six are in California and two are in Florida. That’s due to state laws limiting reassessment.

Across more than 100 cities, the study concludes that those that rely on property taxes, rather than increasing sales and income taxes, have the highest effective rates of property tax.

However, another key reason for higher property tax rates is lower property values, requiring cities to impose larger effective rates to achieve a comparable level of tax revenue enjoyed by areas with more expensive homes.

The average effective tax rate on a median-valued home was 1.49 percent in 2017, with wide variation across cities. Three cities have effective tax rates that are roughly 2.5 times higher than the average – Bridgeport (CT), Aurora (IL), and Detroit. Conversely, seven cities have tax rates less than half of the study average – Honolulu, Charleston (SC), Boston, Cheyenne (WY), Denver, Birmingham, and Washington, DC.

 

Highest and Lowest Effective Property Tax Rates on a Median-Valued Home (2017)

Highest Effective Property Tax Rates
 

Lowest Effective Property Tax Rates
 

1

Bridgeport (CT)

3.81%

Why: High property tax
reliance

49

Denver (CO)

0.66%

Why: Low property tax reliance,
high home values, classification

2

Aurora (IL)

3.76%

Why: High property tax
reliance

50

Cheyenne (WY)

0.65%

Why: Low property tax reliance

3

Detroit (MI)

3.63%

Why: Low property values

51

Boston (MA)

0.51%

Why: High home values,
Classification shifts tax to business

4

Newark (NJ)

3.16%

Why: High property tax
reliance

52

Charleston (SC)

0.50%

Why: Classification shifts tax to
business

5

Milwaukee (WI)

2.57%

Why: Low property values,
high property tax reliance

53

Honolulu (HI)

0.31%

Why: High home values, low local
gov't spending, classification

 


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