How Property Tax Works
Property tax is an annual tax levied by local governments—counties, cities, school districts—based on the assessed value of your home. Unlike income tax, you owe it whether or not you earn a dime that year. Miss a payment and the county can place a lien on your property.
Your tax bill depends on three numbers: your home's assessed value, the local millage rate (tax per $1,000 of assessed value), and any exemptions you qualify for. The formula is straightforward: (Assessed Value − Exemptions) × Millage Rate ÷ 1,000 = Annual Tax.
Property Tax Rates by State: Highest and Lowest
| State | Effective Rate | Tax on $300K Home | Tax on $500K Home |
|---|---|---|---|
| New Jersey | 2.23% | $6,690 | $11,150 |
| Illinois | 2.07% | $6,210 | $10,350 |
| Connecticut | 1.96% | $5,880 | $9,800 |
| New Hampshire | 1.93% | $5,790 | $9,650 |
| Vermont | 1.83% | $5,490 | $9,150 |
| Texas | 1.68% | $5,040 | $8,400 |
| Lowest Rates | |||
| Hawaii | 0.27% | $810 | $1,350 |
| Alabama | 0.39% | $1,170 | $1,950 |
| Colorado | 0.49% | $1,470 | $2,450 |
| Louisiana | 0.52% | $1,560 | $2,600 |
| Delaware | 0.53% | $1,590 | $2,650 |
Source: Tax Foundation and U.S. Census Bureau 2025 median effective property tax rate estimates. Actual rates vary by county, city, and school district.
Homestead Exemptions: How to Lower Your Property Tax
A homestead exemption reduces the taxable value of your primary residence. Most states offer one, but the amount and rules vary wildly. Texas exempts $100,000 from school district taxes. Florida caps annual assessment increases at 3% for homesteaded properties (Save Our Homes). California's Proposition 13 limits reassessment to 2% annual increases until the property sells.
To claim a homestead exemption, you typically file with your county assessor's office within the first year of ownership. Some states auto-enroll you, others require a separate application. Seniors, veterans, and disabled homeowners often qualify for additional exemptions on top of the standard homestead amount.
Common exemptions beyond homestead include: senior citizen exemptions (age 65+ in most states), disabled veteran exemptions (partial or full), agricultural use exemptions for farmland, and energy efficiency credits for solar panels or green upgrades. Stack every exemption you qualify for—they compound to significant savings.
How to Appeal Your Property Tax Assessment
Your county assessor determines your home's assessed value, and they get it wrong more often than you'd think. The National Taxpayers Union estimates that 30–60% of properties in the U.S. are over-assessed. If your assessed value is too high, your tax bill is too high.
Step 1: Get your property assessment notice (mailed annually or available on your county assessor's website). Step 2: Compare your assessed value to recent sales of similar homes within half a mile. Step 3: If comparable sales suggest your home is over-valued by 5% or more, file a formal appeal with your local Board of Equalization or Assessment Appeals Board.
Gather evidence: 3–5 comparable sales (sold within the last 6–12 months, similar size, age, and condition), photos of any defects your home has that comparables don't (foundation issues, outdated kitchen, no garage), and an independent appraisal if the stakes justify the $300–$500 cost. Most appeals are decided within 60–90 days. Win rates vary by jurisdiction, but homeowners who show up with solid comps succeed more than half the time.
To see how property taxes affect your total housing cost, try the home affordability calculator. For a full monthly payment breakdown including taxes, insurance, and PMI, use the mortgage calculator.