This post will provide a detailed look into property taxes by state. The differences in property taxes by state from the highest (Illinois at 2.32%) to the lowest (Hawaii 0.28%) is astounding.
Therefore, just because a state has cheaper home prices doesn't mean you're getting a better deal long term. States rely on property tax collection to pay for public utility works, schools, and more.
During the pandemic, a lot of people relocated to Texas from California to pay no state income taxes and buy cheaper homes. However, the property tax rate in Texas is 80% higher than the property tax rate in California.
Where you live in America can really help or hurt your finances. In a time when working from home is more feasible, many more people are trying to geoarbitrage to make their income go farther. However, if you are to buy a property in a different state, you must take into consideration the property tax rate given it is forever.
The City Loves Your Property Taxes
I used to despise my property taxes because San Francisco would raise them even when property prices were declining during the financial crisis. It was/and still is up to property owners to fill out a complicated form, find comparable homes that have dropped in price within a certain radius, make sure the comparable sales fit within a certain timeframe, and pay a $60 fee to do so with no guarantee you'll win!
If you didn't spend time contesting your property taxes, the city would gleefully raise them despite the obvious declines. The city counts on meek or ignorant people to fill their coffers and pay themselves handsome salaries.
It's just like how members of Congress continued to get paid even when they shut down the government or close businesses during a global pandemic. Can you imagine losing your job in the recession and having to pay higher property taxes while knowing your neighbor sold his house for 20% less than the city's assessment?
Fight Your Property Taxes
I fought my property taxes in 2009, 2010, 2011, and 2012 and won for a particular property I bought in the beginning of 2005. I had to fight since the value of my stock and real estate holdings were getting hit and I no longer had a job in 2012.
Since 2013, I've let the city tax me back to my normal purchase price plus a ~2% a year catch up increase because the economy has thankfully recovered. I don't mind paying my fair share so long as it's just.
After paying over $500,000 in property taxes since 2003, I've finally accepted the reality it's up to those of us who saved like crazy and took the risk of owning property to pay. It is our responsibility to pay for our community's infrastructure, education, public transportation, service men and women, and other public works. We must pay for those who cannot or will not.
What I've also realized is that after much debate, my fellow renters absolutely believe they are paying their fair share of property taxes, even if they aren't cutting a separate check to the city twice a year.
With this thought in mind, I now believe it's logical behavior for renters to keep on voting for increased government spending. After all, renters also want better and are willing to pay for it through higher rents. If they didn't, they wouldn't be fair since we all benefit by services from the government.
Property Taxes By State
Below is a map that shows the property taxes by state. The darker the shade of purple, the higher the property tax rate.
Although my home state of California (0.81%) property taxes feels high due to high property prices, it's not the highest property tax state.
Property tax rates in New Jersey (2.38%), Illinois (2.32%),Connecticut (1.98%), Wisconsin (1.96%), Texas (1.9%), Nebraska (1.84%), Michigan (1.78%),Rhode Island (1.67%), New York (1.64%), Ohio (1.55%), and Pennsylvania (1.54%) are much higher.
Surprisingly, one of the lowest property tax states is Hawaii, my favorite state in America at only 0.28%.
My family and I plan to relocate to Hawaii in 2022 when our son is eligible for kindergarten. If we had the money, we could literally buy a property worth $10 million and pay less than our current property tax. Nuts!
Why Higher Property Taxes Are Good
Although I hate paying property taxes, I want to look on the positive side of things. With the government getting bigger under President Biden and the global pandemic ruining state budgets, it is an inevitability that property taxes are going higher.
Here are five reasons why higher property taxes are good. I've used my hometown of San Francisco as an example.
1) We want our public servants to do a great job for us.
Roughly 40% of San Francisco's 40,000 +employees make over $100,000. If our BART train janitors can make $271,000 and our elevator technicians can make $284,000, this should attract some of the most dedicated people to our city to ensure we have the cleanest bathrooms and the most functioning elevators around.
Imagine having to take a dump and seeing a disgusting toilet that hasn't been cleaned in a week. Imagine being 80+ years old with a bad knee and having to walk up two flights of stairs. By paying our government employees top wages, we should get top service.
2) We want our public servants to be able to afford homes and take care of their families.
The median price for a home in San Francisco is around $1.8 million. To comfortably afford such a house requires a total household income of at least $250,000, if not closer to $350,000. A society is strong when every citizen has the opportunity to own his or her own home and plant roots. They'll pay property taxes, help take care of their neighborhood and grow a strong sense of community. Having a stable place to grow up is great for our children.
3) We want better schools, roads and public transportation.
The better our public schools, libraries, roads and general infrastructure, the more attractive our cities will be. The more attractive our cities are, the more people will want to come and stay. The more people come and stay, the higher rents and property prices go.
The higher rents and property prices go, the wealthier property owners become and the more the city earns in taxes to theoretically help all citizens. More job opportunities are created for renters as well so they can one day buy if they want to.
Related: Your Homeowners Insurance Policy Needs To Be Updated
4) We want to empower renters to help make a difference.
It's sometimes hard being a renter in a booming economy because you might not be able to fully participate in the upside as a price taker. Imagine wanting to buy a place that costs $700,000 one year, but costs $800,000 the next year. Meanwhile, your salary only increases by 5% from $100,000 to $105,000.
Feeling like you're getting left behind is a terrible feeling. The good thing is that we all have the equal right to vote for legislation to help improve our environment. When legislation passes that requires additional spending, property taxes go up and so do rents. Higher rents actively allow renters to help participate in the very legislation they support.
5) We create more harmony between landlords and renters.
When rents are rising in an economic recovery, there's an inevitable friction between landlords and tenants. Some tenants might view landlords as greedy for raising their rent, even though they understand the law of demand and supply.
Some landlords get frustrated for being called greedy when their property taxes, maintenance costs, construction costs, insurance costs, plumbing costs, electrician costs and handyman costs all go up.
If more tenants knew how much it actually costs to own property, including the cost of a mortgage, there might be less friction and more love. When there is more love, there is more happiness.
My Property Tax Bill
Below is a snapshot of one of my property tax bills in 2020. It's the property I mentioned in the beginning of this post. The net taxable value is $1,825,109 and the total annual property tax I have to pay is $21,873.72.
I don't know about you, but paying ~$21,873.72 a year for the past 11 years, and each year for the rest of my ownership life is a lot of money for an unemployed writer.
I never enjoy raising rent on my tenants, which is why I hardly ever do. Only when there is turnover will I try and raise the rent to whatever the market can bear.
When I have raised the rent in the past, it's never been by more than 2.5%. The rent increase is always due to a rise in some type of cost and not due to my desire to make more money, e.g. increases in HOA, insurance, etc.
Property Tax: Easy Target By The Government
Recently, the San Francisco Bay Area passed Measure RR, a $3.5 billion Bay Area Rapid Transit maintenance bill to be paid for by property owners. It required at least a 70% margin of victory and it passed because a landslide 81.1% of San Francisco's voters supported the measure. What this means is that most of the supporters of the bill are renters since ~65% of San Franciscans are renters.
The passage of Measure RR is good news for the Bay Area since we need well running trains to ensure the people of our booming economy can get to work as safely, cheaply, and efficiently as possible. This is great for renters and homeowners. Compared to the public transportation system in NYC, London and Taipei, the Bay Area's train system is terrible.
A Bay Area homeowner will now see his or her property taxes go up at an average tax rate of $8.98 per $100,000 of assessed value in 2017 with a peak of $17.49 per $100,000 in 2036. In other words, my property tax bill will now be higher by $180 – $332/year on top of the $21,873.72 a year I already pay. Let's just call it $22,000 a year.
Although it feels bad to pay even more property taxes, here's the silver lining. Because renters understand that higher property taxes means higher rents, landlords now have a much easier reason to raise rents so that we can all share in the responsibility of taking care of our public works.
Related: Income And Net Worth Required To Buy A Home At All Price Points
The E-mail To Send To Renters
Based on my research, the number one reason why so many landlords do not raise rents each year is because it's a difficult and awkward conversation to have. People do not like to make other people feel bad. Confrontation is uncomfortable.
Everybody understands that due to inflation, the cost of ownership goes up at least 1-2% a year. And if a landlord does not raise rent by the same 1-2% a year, the landlord is losing. But despite landlords knowing renters understand this logic, landlords still don't raise rents every year. This is an economic inefficiency that must be eliminated.
If you are a landlord who is faced with higher property taxes due to new legislation voted by the people, you can now send them the below e-mail or letter to raise the rent for the good of the community. Simply swap out the legislation, amount of spending, purpose for spending, amount of rent and timeframe to fit your situation.
Dear Tenant,
I hope all is well with you. Due to the passage of Measure RR, a $3.5B bill to maintain our public train system, the city is raising property taxes by roughly $XXX a year over the next 20 years. As a result, your rent will increase by $XXX a month starting on June 1, 2017 for the next 20 years as well.
Thank you for supporting our public transportation system and great city. Not only does your rent and my property taxes help decrease congestion on our roads, we help create new libraries for our children, keep our teachers employed and help maintain our beautiful parks.
Respectfully Yours,
Your Landlord
Everybody Pitches In
It's important to make your tenant realize the rent increase isn't just because you want more money to help pay for rising costs. You must also highlight the value proposition of what the new rent provides. People want to know their money is going towards something meaningful.
Landlords should no longer be frustrated with ever increasing property taxes anymore if they consistently raise rents whenever a new bill that raises property taxes is passed. Renters should no longer be frustrated with rising rents either when they voted for more government spending.
Everything is rational in the end. It's up to each of us to stamp out inefficiencies and embrace the goodness of ever increasing property taxes. Together, we will all pitch in to support our community.
Just know that even if you pay off your mortgage, you will always owe property taxes. Therefore, knowing the property taxes by state and relocating to states with lower property taxes may be a wise move in retirement.
Landlords, have you finally embraced higher property taxes? What is your property tax rate and how in property taxes are you paying a year? Renters, does it help to know that an increase in rent is used to help public works for the benefit of all? Do you believe there are renters out there who vote to raise spending and property taxes but aren't willing to pay for what they voted on? Don't forget to pay your property tax bill on time!
Recommendations To Make And Save Money
Invest in real estate more surgically. If you don’t want to constantly pay massive property taxes, don't have the downpayment to buy property, or don’t want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today. You can invest in deals around the country for as little as $1,000. It’s free to explore.
I've personally invested $810,000 on the platform after selling my San Francisco rental house in 2017. It feels amazing not to have to pay $23,000 a year in property taxes anymore, while earning income 100% passively!
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I've met the founders at PolicyGenius multiple times and I truly believe they have the best insurance platform today.
Related: Unemployment Benefits By State
Property tax rates by state is a Financial Samurai original.
The article is incredibly flawed. So Flood I believe it should be retracted. If everyone made a lot more money all you would have is more inflation which means the prices of everything would adjust upwards and you’d be no better off. If the elevator repair man made $270,000 to be little reason to go to law school or to be a doctor.
Humans are flawed. Feel free to write an argument against my five points.
Less people are becoming lawyers and doctors in favor of occupations that require less education and quicker achievement. Just Google it. People are realizing there are MANY ways to make good money.
What’s your background?
I tell people if they want affordable housing then stop passing levy and tax increases because it just raises rents.
Lanrdlords that don’t raise rents and actively keep rents in line with market can be flagged in an IRSaudit. Underpricing your rentals is a red flag with irs showing you aren’t managing them as an investment. Trust me, they go thru all your rent rolls and that is why quicken added a module asking to verify/prove that your rents are inline with market rents to avoid high risk of audit.
Also the cost of replacing carpets and wear and tear costs are increasing so not keeping your rents increase is decreasing your net returns.
What are the some of the reasons why the IRS would want to go after landlords who charge below market rent?
They will say that you arent running the rentals as investments and will disallow the deductions. (I meant turbotax not quicken above)…just google irs audit for below market rents. If you show steady increases then tenants are used to is and irs see u are actively manage them. I just tell tenants that my costs (insurance, taxes, labor costs) and overall rental market had increased so rent have to go up. Its much easier to raise rents 3-5% a year than jack them up 10%+ in one year. Big increases is what gives landlords problems and causes tenant advocates to get more tenant laws passed. We juat had one passed locally.
Problem with all these these tenant laws is it causes more landlords to take inventory off the market for rent…..it is what is happening in Portland OR . Out of state investors jacked up rents huge in short time and now trying to pass all kinds of laws.
“I tell people if they want affordable housing then stop passing levy and tax increases because it just raises rents.”
I totally agree with you Brian…but you’d be amazed at how many people out there think they are somehow beating taxes by renting. People on this site all get it as people on this site tend to be much more financially savvy than the average person, but a lot of people are clueless when they cut a check to a landlord part of that check is going to pay the exact same property taxes that would be paid if the landlord lived there as a primary resident. If Sam sent that sample letter to a tenants, I’d suspect a lot of them would immediately just think their landlord is a cheap jerk bleeding them dry just coming up with excuses to raise rent for no reason.
Its just a death spiral after a while. People complain about high cost of living and vote for more government services thinking it will make things easier for them…only taxes go up more, which increases their cost of living.
Unless you literally want to plan your entire life around benefiting from government services, there is no point in living in a high tax area for most people short of being stuck at a job or biting the bullet because you have lots of family in the area.
“Unless you literally want to plan your entire life around benefiting from government services, there is no point in living in a high tax area for most people short of being stuck at a job or biting the bullet because you have lots of family in the area.”
Pretty true, although it is hard to change your habits and move away from friends and family the older you get. CA has already gotten $350,000 in property taxes alone from me. In away, I want to get some benefits now! And for about two years, I felt I was winning b/c I was making a median income and had time to enjoy the public works.
But if you are a landlord getting stuck with a higher bill, it is your duty to spread the cost to those who stuck the bill to you. In fact, it is reasonable to believe you should give the entire cost of the bill to those who voted to raise your bill.
I love the email template you provided and congrats on winning for four years in a row!!! Being in my early 20s from Wisconsin and not owning property it is good to know that I am #5 on the list!
I learned something new today.
Not sure paying taxes is the best way to help with all the things you mentioned. For instance, the government can get out of my kid’s schools. Let’s not mistake taxes for charity. I would agree with you if this article was about charity but I’m not too happy about paying more in taxes because I know that much of the funds are NOT going to good public works projects but rather to inefficient welfare programs or other government boondoggles.
I guess I just don’t have as much faith in the system as you do!!!
Exactly. I live in CT…#4 on the list. We get double slammed because we have relatively high property values as well. The only thing we really have to show for it compared to other states is a more generous welfare system and a more broke government employee pension system.
I’d love to buy a house on a few acres with a multi car garage, a viper, and a new rice rocket…but I’m not going to do it here because compared to my 1 car and my small condo its going to increase my taxes about 10,000 dollars a year.
I’m just going hold off a couple more years until I’m eligible for a transfer in my company, then I can move down south or out west where taxes are much cheaper, I can get much more house/land for my money, make the same wages, and buy all the nice stuff I want without getting killed in property taxes.
I’m not embracing higher property taxes, I’m avoiding them. At the end of the day the state/local government here just simply doesn’t provide anything for me that I wouldn’t get from any other state/local government. The benefits of higher property taxes are only seen by select individuals…sure a subsidized rail system for example might be nice if you use it often…but its only nice for those who use it because those who don’t use it are essentially paying for nothing. Acting like we should all embrace higher taxes even though it seems most of the time a lot of us get zero benefit from it is just silly. I’d rather the price to hop on a train simply go up a bit than my property taxes go up so someone else can get a cheaper train ride.
I think its supremely hypocritical that you title an article “Why we should all embrace higher property taxes” while not only in this article, but in many of your other articles, you talk about strategies to minimize your tax liability and have your tax burden reduced.
Don’t get me wrong I’m not blaming you for doing everything you legally can to lower your tax burden, I do the same, but why preach the opposite of what you practice?
If you read the reasons and the solutions, I don’t think it is hypocritical at all.
I fought very hard for very long to educate people that more inefficient government spending leads to more waste, and more cost to all taxpayers eventually.
Figuring out a way to amicably pass on the property tax increase that your renter voted for is a great solution. Everybody wins when we stamp out economic waist and inefficiencies.
In my other tax post on trying to legally minimize tax liability, I offer solutions as well. Always focus on the solution and try to read in between the lines.
“Why we should all embrace higher property taxes”
“Figuring out a way to amicably pass on the property tax increase”
Replace any reference to taxes with teddy bear and you can see how your stance here makes absolutely no sense.
“Why we should all embrace teddy bears”
“Figuring out a way to amicably pass on the teddy bear”
You aren’t embracing something if you are passing it off on to someone else!
Look you mentioned a public transit system in your sample. Well what if your tenants prefer to walk, bike, use uber, or have their own car? Why would you think they’ll gladly embrace higher taxes to support a system they don’t even use? Sometimes…higher taxes just encourage existing residents and businesses to move and provide potential incoming residents or new businesses with incentive to go to other towns. If the local bus company was looking for donations to keep ticket prices down I wouldn’t donate a dime to them when they don’t even run a route that goes near my house or my work…why should I embrace the local government raising my property taxes while subsidizing them?
I get the concept that paying a little extra in taxes for things that benefit everyone aren’t bad…but beyond the basic services like road maintenance, k-12 schools, police, firefighters, etc that actually does benefit all of us that are available everywhere, what does the government spend property tax revenue on that benefits everyone? Besides the transportation example above, what if you love to travel and they raise your taxes to build/maintain a park across town that you never go to. Should you embrace higher taxes that take money away from something you enjoy spending it on and reroute it to something you’ll never use? What is the benefit of that vs maybe just charging a 2 dollar entrance fee so those that use it can fund it instead and keeping your taxes low?
I don’t even ride the BART train b/c I walk, Uber, drive, or take the bus and I’m still paying.
Bottom line: We must ALL pay for ever increasing government spending until we gain a majority and decide enough is enough. We cannot let those who vote for increased gov’t spending to not pay their fair share.
California is a blue state. Taxes will always go up, and therefore, so will rents.
The taxes in our Central New York university town of about 30,000 are insane as well – about 2.8%.
For those looking to purchase property in a high property tax state: One strategy we used when we purchased our current home was to arrange to pay the sellers’ real estate fees at closing in exchange for a corresponding reduction in the purchase price. So, instead of paying the seller $550,000 for the property (from which they would turn around and pay 5-6% to the real estate agents), we wrote the contract to pay $525,000 for the property, plus $25,000 cash towards fees at closing. The recorded sale price (on which the assessed value and, hence, property taxes are based) was $525,000 instead of $550,000, saving us about $700 per year.
It’s not much, but with two kids to put through college, every dollar counts!
That’s a great tip KC! Not much, but will help more and more the longer you hold the property.
The best advice I have for keeping property taxes low is to buy a stalefish fixer. Instead of buying my property for $1.9M buy a fixer for $1.23m and put in a couple hundred grand. Having a $470,000 lower assessed value is worth $5,000 a year into perpetuity here in SF, and sounds like it’s worth $14,000+ where you live a year!
Hopefully property price appreciate has more than made up for your high taxes?
Not yet — we only purchased 2.5 years ago — but we’re in for the long haul! (We also re-fied this summer for 2.625%, so lots of reasons to stay put and appreciate.)
We live in California, but pay significantly more than the 0.8% average. Our property taxes are almost 2% as we have a special 20 year bond for the school district that we have to pay for, which essentially doubles our 1% tax rate to 2%.
Since we have our property taxes impounded and included in our mortgage payment, I forget about them…but when you add them up over the years, this is another significant chunk of change.
Luckily my wife is diligent about appealing valuation increases that lead to increases to our property taxes. And during the downturn she even fought and won reductions in the valuation of our investment condo…that saved us at least a few thousand dollars over the last 7-8 years.
You may want to consider INVESTING in the 20-year muni bond.
I know I plan to invest in the Measure RR BART $3.5B bond next year to recoup some of my money. If they can charge a high coupon, then all the better.
Never being a landlord myself, I’m all for property taxes to help improve my community… to a certain extend. What would my threshold be? I’m not 100% sure on that one. I’m fortunate to keep those tax values relatively low where I live.
That map of property taxes isn’t accurate. For example, here in the Denver Metro area hoses built in the past 10 years or so are all showing property tax bills in excess of 1.2%. And that’s in addition to the 9.25% sales tax and a 4.63% state income tax and whatever you’d pay for federal income tax. And add to that home prices have over doubled in many areas over the past few years.
We can’t afford to buy anything here unless it’s in a terrible area, so we’re visiting a few cities over Xmas and MLK breaks to scope out potential areas to move to. Oh, and our neighbors have been absolutely horrible at every place we have lived in this area. So many things we don’t like about living here that I won’t list them out here. Most of the state is just beautiful though, and we will miss that the most. The people, not so much.
Just out of curiosity, what’s wrong with the people?
It’s the effective property tax rate per state. In SF, I pay 1.17% even though the map says ~0.8% for CA.
That’s a lower tax rate than most places built in the past 10-15 years in the Denver area. Crazy to think SF has lower taxes than boonies suburbia here.
I’m not from here, so I’m not going to list all the things I don’t like about the people here, but I will say that I grew up in the SE where people are taught manners and how to behave, and that’s something that’s seriously lacking here. We share walls, and in the 6 years we’ve lived here we have never had a neighbor that wasn’t a selfish jerk. Upscale suburbia, not a bad area.
There tends to be an inverse relationship between state income taxes and property taxes. I’m not a smart man, but if I was, I’d spend most of my working years in a low or no income tax state, and my retirement years in a low property tax state.
Arbitrage for the win!
-PoF
I once calculated up the combined income and sales for all the states and no matter what, they all came out to be roughly 10% total give or take a percent for the more socialist/conservative states.
To avoid either completely, you can live along the WA (no income) and OR (no sales) border or the SD (no income) and MT (no sales) border.
I’m very mixed on property taxes here in CA. I’m okay with them, because for the most part, they do go back to local projects and infrastructure, which is good.
However, we tend to pass a lot of bonds and propositions where I’m located – for water, sewer, schools, roads, etc. While these sound good on the surface, many of these smaller, local agencies have historically struggled to manage their projects well and wasted a lot of taxpayer money.
As such, I’m always leery with every bond measure that attempts to be passed for a special district. All it tends to do is raise my property taxes while continuing to encourage mismanagement.
Sam, what are your thoughts on rent regulation? Washington State banned rent control statewide back in 1981. Due to skyrocketing rents, Several Seattle officials are currently attempting to bring back rent control in one form or another.
My assumption is that the private real estate market will not assume the risk involved with commercial real estate ownership if a reasonable profit cannot be achieved. If regulations drive down reasonable and necessary profit, developers will likely go elsewhere.
Rent regulation / rent control is great for landlords as it artificially reduces the supply of properties available for rent, thereby jacking up prices for every renter who does not get rent control.
Only a lucky few win, hurting the masses in the process.
Delaware .5% property tax 0% sales tax.
I live in a suburb of Houston and our property taxes are 2.8%, which is on the lower side as we live in an older neighborhood. Newer homes have a total tax rate of about 3.7 percent. Additionally, our water rates are increasing about 15 percent a year due to the Texas Legislature passing a law few years ago where we cannot use ground water anymore due to the subsidence issues but only surface water. The cost to transport water from the nearest lake to the suburbs is very high, which translates into a water bill of about $150-$200 per month, depending on the usage. Most landlords prefer that the water infrastructure improvements be paid with higher water rates, as they don’t have to pay for them, versus higher taxes, but I think the blend of both would probably work best. On the bright side, we do not have a state income tax.
2.8% property tax is outrageous. Almost $15,000 a year for a $525,000 house? Wow. It is great you have no state income taxes for sure. At least we can deduct our state income taxes here in CA. But still.. 10% is onerous.
I really enjoyed your article, it was incredibly insightful! Your take on the positives of property taxes was refreshing! Many people tend to only see the negatives on property taxes but you reminded us the good uses of them! I really liked the way you worded your email to your tenants, it was classy and respectable! Some landlords could just straight up be rude and only in it for the money!
Loved the article, Sam. If you will forgive the terminology it reminds me of a Marine Corps saying “You can’t rape the willing.” To your first and second point (as a public servant) I hope you do get excellent service in the Bay Area because the public servants are among the best compensated in the country are wel. I myself have worked for big cities with average salaries and small wealthier cities with better salaries.
The small wealthier cities do pay better but usually expect more education, customer service, and job quality. I am more than happy to provide that and see it as an honorable deal. Where I work my fellow public servants usually are at pains to provide excellent customer service and I see the shock in visitor’s eyes when they see everything functioning well in an orderly, professional environment.
On another note, my History books usually portrayed the original sufferage requirement of property ownership as a means of repression. I understand the argument, but as a property owner myself, I came to understand how truly owning, not renting, does attach you to the local community, whether you want it or not. There is an inherent “buy in” when 30 yo 70% of your net worth is tied to a single plot of land. I believe this is often overlooked these days.
Ultimately property tax is passed on the renters. It isn’t necessarily instant, but eventually. Hopefully they connect the dots on their own, but I like that example email to tenants.
The issue I have with embracing higher property taxes is that it is one of many taxes. There are so many, it is hard to say one is the right way of doing it. For example, could we get rid of sales tax and increase property tax? Or business tax and make up for it on personal taxes? Why not simplify?
OK, this post is freakin’ funny— well done, Sam! Yeah, right— like renters rationally understand that voting for expensive public works projects paid for by property owners will result in their own rent increasing. Ha! Alas, I fear this is giving a great many of them more credit than they deserve. But I have always loved your “Everything is rational!” mantra. :)
I agree with the Alchemist. When I was a renter I didn’t give any consideration as to how my votes would affect my rent. You can betcha that I do now as a landlord!
I think it depends on the individual’s own landlord-tenant relationship. For over 10 years I enjoyed fabulously below-market rent in a house owned by a retired teacher. She lived in the house through her working years and when she retired, she converted the SFR into two units and retired to a nearby rural area. The rent did not go up the whole time I was there; the only reason I left was a health issue that rendered me with limited mobility and unable to work for about a year.
Her exit strategy was brilliant: she was happy to hold the property indefinitely and all she wanted were low-maintenance, stable, long-term tenants – pretty much a turnkey property, which she had. By holding until death, she would leave the property to her son with a stepped-up tax basis and a windfall untaxed capital gain. Win-Win.
So I was happy to vote against property tax increases. On the other hand, this was in a college town with onerous regulations and rental ownership concentrated in a small number of hands – the onerous regulations drove out many small landlords, who sold out to the ever-larger landlords. Since the local landlords were happy to extract every rent dollar they could, there was an adversarial mentality where the other renters were happy to stick their ‘greedy’ landlords with any tax increase they could.
I’m glad you and your landlord had a win win situation. And I hope your health has stabilized or improved since moving.
Per your last statement, this is how wars never end. It becomes a vicious cycle where one side wants to “stick it to the other side.” Eventually, massive economic waste unfolds as landlords keep their properties empty, taking out supply that exacerbates the rental market for prospective tenants.
I’m an economist by nature. That is my training from college and business school. I’m always focused on maximum economic efficiency on both sides. On the one hand, we can treat other people with respect and decency to minimize waste. On the other hand, we need to use our financial common sense and look at the hard numbers. He or she who can demonstrate both high emotional intelligence and high financial acumen usually does very well.
I live in Ohio where you can find a lot of great deals on property – in fact, I know a handful of people from California that do their investing in rentals in Ohio just because of that. What I didn’t realize is that the property taxes are pretty high relative to the rest of the nation (#12 – thanks for that cool chart!).
I fought my property taxes a few years ago and won. It was a pain in the butt to do – I had to research and pull comps, put together some documentation, and take a half day off of work to meet with a panel on it. Would I do it again? Absolutely, if the numbers were out of whack again. If it’s in the general ballpark of where it should be, I’m Ok with paying my fair share.
— Jim
Ohio is definitely an interesting and strange situation. Like SF, it has an abnormally high level of renters, but unlike SF it is not due to “outrageous living costs” but seems more due to cultural factors, i.e. Millennials scarred by the subprime crisis, large communities of the colored poor, Rust Belt cities with legacy infrastructure you won’t find out in the West, etc.. I don’t know if Ohio portends the future of decreasing non-homeownership, but if it does, it’ll be very good for landlords.
Well done fighting Jim! It’s a shame we have to FIGHT to get our property taxes PROPERLY assessed. I wish the government was benevolent to fight FOR US. But no. They just want to take, take, take, and take.
When will renters who don’t want to pay higher rent realize it is the government who is helping push rents higher?
After successfully fighting our tax bill for years (we bought well under market price but not in a short sale/foreclosure), we lost this year…big time. A 15% increase. Barf. We knew eventually we’d pay the price, especially since the markets continue to rise in our little slice of suburbia.
Dang! That is a huge percentage increase! Sorry about that. How much in percentage terms were you able to decrease your property tax in the past?
That’s nothing. Here in the Denver area I have seen many property tax bills go up 50%+ in a year. There is no cap on tax increases here so the greedy bastards jack up taxes every chance they get. Once my wife is done with this school year we’re moving to a state that doesn’t try to screw over their residents every chance they get. Somewhere there’s a cap on property tax increases for sure, and somewhere with no state income tax would be nice too. And somewhere I can buy a house and not share walls with selfish jerks.
Wow, 50%? That sounds like EXTORTION! WTF Colorado.
Yeah, I really wish I’d done some research before moving here. But we were in the “let’s move somewhere with great snowboarding and skiing resorts close to town” camp when we stupidly left NC. We went snowboarding once last year and didn’t even buy a pass this year. Sitting in traffic for 4 hours each way is soul crushing, and we spent more time in traffic than we did on the slopes.
That was before I wised up about finances, so we’re now looking to move to a more money friendly state. TX is great for both our jobs, but in the Dallas area property taxes are very high at just over 2%. Houses are incredibly cheap compared to Denver though, so that helps. But still, I don’t know if I can swallow a 2.2% property tax bill. No state income tax compared to CO would bring our property tax down to less than 0.5% though which is totally manageable. FL and NC are also on our list of places to move.
Is it just me or does this post seem slightly tounge in cheek? It doesn’t sound like Sam’s normal writing voice and his position on goverment and property tax.
Agreed. He’s normally not a fan of government :)
I’m still not a fan of government due to the corruption and inefficiencies. However, what is a property owner going to do? If we don’t pay, we get fined or thrown in jail. If we don’t pay long enough, then they’ll take away our land!
As a result, it’s time to look at the bright side of ever rising property taxes. From an economic point of view, if the renter can pay for 100% of the property taxes increases, that’s great for the landlord. Meanwhile, the landlord gets to benefit from improved public infrastructure to attract more people to drive up rents and property prices. Of course, we should probably share in the property tax bill and increases. But what is the right amount to share? 50/50? Who knows.
My main question for the media and others who say “the rent is too damn high,” why continue voting on more spending that raises property taxes that raise rents?
What I’ve come to realize is that the rent is NOT too damn high. The rent is exactly what the market is willing to bear. 81.1% of San Franciscans voted for the $3.5B increased spending on BART trains to be partially paid for by 20 years of increased property taxes. As a result, SF renters don’t mind paying higher rents in order to have a better running train system and higher salaries for BART officials.
If you can’t beat the government, which nobody can, you’ve got to look for the positives!
Sam
Sadly people are always willing to vote for other people to pay taxes. Reference the recent proposition to extend the tax on the wealthy in california, which passed easily.
Ultimately, landlords benefit from all inputs, e.g. rents, leasehold improvements, and infrastructure improvements. So if you can get your tenant(s) to cover the marginal costs (e.g. property tax increases), you gain in the long run.
That’s exactly right. And if the government gives landlords a clear and definitive reason to raise rents, landlords should do so.
I lived in an apartment complex that charged the property tax increases as a separate bill to the tenants in addition to raising the rent every year by $100 or more. I understand raising the rent in order to cover rising costs of ownership, but I felt like I was getting double charged for the separate bill on property tax. I didn’t even own the property. Why not just use rent increase to cover the property tax like everyone else? Needless to say, I moved out and found somewhere more reasonable to live.
This is why landlords can be more transparent with their actual costs. If I showed you my $22,000 a year property tax bill, I think you’d be less against an increase in rent or a separate bill for property taxes.
That is an interesting idea though regarding asking for a separate bill for property taxes.
I’m with you, Sam! Although everyone in Nashville is complaining about about next year’s tax increase, I want to see improvements like better public schools and transportation. We don’t have state income tax and the state is getting rid of capital gains & dividends tax within the next five years. Our sales tax is already 9.25%, so that can’t go much higher. I successfully fought my property tax increase four years ago and my house’s value was assessed at $170,000. Next year, I’ll be lucky if it gets assessed at $300,000. I’m okay with paying more for the benefit of all.
Well done fighting! Now that it is BOOM times now in Nashville, you get to benefit from a ~76% appreciation in property value, and ~380% appreciation in equity provided you put down 20%. That’s pretty darn good in four years!
It’s during the downturn when things are off. Imagine having to pay property taxes on a $300,000 assessed value if your property was only worth $170,000 and you got a pay or job cut? That’s what was going on all over the country by inefficient, greedy government officials who wanted to milk homeowners of us much tax revenue as possible.
The Nashville renter has seen his or her salary rise in the past 4 years hopefully, but they are now 76% behind in buying a similar property as well. If the renter and homeowner can share in the property tax increase, that’s good for all.
I live in Delaware so count me amongst the lowest property taxes in the country. Then again the situation is unique as most of the states coffers come from corporations not individuals directly. Still your point is valid, with almost all taxes we all pay as the tax is passed on in higher prices (rents in your example). They are discussing raising ours, I expect it will pass.
I too live in Delaware and we definitely have low taxes. I hope that our property taxes are increased since they are based on 1974 assessments!
I agree with the Illinois comment above. Our state has not even passed a budget in the last two years. We’re arguably the worst state in the country and it’s due to mismanagement of tax payer funds and corruption.
For example, take a look at superintendent salaries the last 3 years they’re in office. The salary balloons higher. So their pension in retirement balloons higher. It’s a pathetic system with no accountability and no structure. Fortunately Governor Rauner was elected, maybe 2017 will be a road to recovery. But our road, has cracks and potholes, inspite of paying the 2nd highest property taxes in the country.
And our schools are not that great!!!!! Not acceptable! I live in the suburbs and our taxes are really high but yet our schools aren’t superior!?!?! I guess shame on us….we could move to a better school district. We need school voucher programs FAST!!!! Let’s take our property tax money with us and we get to decide which school our kids should go to!
Maybe Sam can do an article about that topic since Trump just picked Sec. of Education based on her successful policy in this area?!?!
Wouldn’t that be funny if you had to pay 2%+ property taxes in Illinois to help pay for public school and then you ended up sending your kids to $20,000/year private school? Yikes!
It really depends what suburb in Illinois you live in. I live in Chicago and some of the best public schools in the nation are in Chicagoland (ie New Trier, Glenbrook North and South, Highland Park High School, as well as some magnet schools in the city). According to the numbers, the schools in the North Shore as superior to schools in NW Indiana, but of course you’re gonna pay. We’re planning on moving to Highland Park in the future, which has great public schools and great public transportation to the city. I think it depends on what you’re looking for at the end of the day and whether the higher property taxes give you what you’re looking or.
What are the superintendent salaries? Most of our state’s city leaders make $300,000 – $500,000 a year. Perhaps one solution is to pay them MORE to get even more accomplished leaders to make our schools great etc?
Throwing more government money at a problem never works.
Trump will help this country greatly; he knows how to handle money. Perhaps he should send in his D.O.J. in investigate all the corruption in Illinois.
Here’s one Superintendent’s pay. From 2015 he was the 5th highest. I know..worked there.
Long Beach Unified
Superintendent Christopher Steinhauser received $249,330 in regular pay, $115,162 of other pay and $45,492 in benefits, for total compensation of $409,984.
That’s up from $305,612 in 2013.
Interesting take – most people want to pay less. Being in CT we have some of the highest taxes. Last year they increased our taxes for a new sewage plant. I’m fine with the increase because I prefer they manage our sewage properly so it doesn’t end up in our river.
Even with our high taxes, we still have problems. Many people commute in and out of our cities. They live in posh communities where their high taxes go toward excellent schools. Meanwhile, the city coffers are starved and the poorer neighborhoods face high taxes to maintain crumbling infrastructure and a poor school system. Tied in with cases of corruption, this leaves many property owners in the city with a raw deal.
But of course that’s a whole another issue. Most small towns with high taxes have great amenities. While I don’t like higher taxes, I can appreciate them if they are improving our community.
Sorry about the 1.98% effective property tax rate! That is a damn lot. In SF, it is 1.17%, but our property prices are high. But so are those mansions in Greenwich!
No government run program will ever run as efficiently as a private run program. But what can we do? If we don’t pay, we get fined or go to jail. Hence, the best thing to do is make sure everybody pays through higher rents.
Our property taxes change by county in MN (not sure if that is consistent across other states) and our property tax bill is closer to 1.5-1.7% percent of our homes value. the rural counties must pull our average down.
There is also a Renters Property Tax Refund program in MN, based on income and the percentage of your rent that goes to property taxes. I should read up and see if how that all breaks down between the landlord and tenant – it may make the “your rent is going up” conversation more interesting as I know the landlord pays the property tax, but the tenant gets credit for it.
I am all for paying our fair share, but how they determine property value seems out of wack and we will likely have to challenge our properties value next year.
That’s a very interesting system you guys got there in MN. If rent is $1,000 a month, how much in credit back does the renter get?
As a landlord, you’ve got to be extra diligent to make sure your rent is high enough to cover the property taxes then.
“For purposes of the renters refund, 17 percent of the rent you paid in 2015 is considered to be for property tax.”
I am sure this is fun for apartment complexes around tax time:
Your landlord is required by law to give you a completed Certificate of Rent Paid no later than Jan. 31. The CRP shows how much rent you paid during the previous year, and the amount of property taxes you paid through your rent.
Michigan has a similar “property tax circuit breaker” program which provides nonrefundable income tax credits to homeowners and renters who pay more than 3.5 percent of their AGI in property taxes on their primary residence.
Michigan makes a nonrebuttable presumption that 20 percent of rent paid is imputed to property taxes – used to be 17 percent until a 1994 tax shift created a new “nonhomestead” tax on rental property.
There is at least one state with a similar circuit breaker which allows renters to apply actual property taxes to the calculation, but I don’t recall which state that is.
For almost 10 years this nonrebuttable presumption denied me a tax credit over $400 per year because the property taxes were high but my rent was very low.
Interestingly, while this tax credit is based on rent PAID for renters, it is based on property taxes BILLED for homeowners, whether the property taxes have been paid.
Same here – aren’t all property taxes determined and administered at the county level? My property tax rate is actually well under the quoted state rate. In my county, we have two different property tax rates: a lower rate for full time residents (primary residence only) and a higher rate for second home owners. I like that it is progressive and helps the local middle class. We also are benefited by fairly significant local hotel taxes that pays for infrastructure.
Wow, that’s impressive you were able to fight your property taxes and win 4 years in a row. My company hired an outside firm to fight the tax increase on our building this last year. They take a percentage of what you get back and you pay nothing if you don’t win. So nothing to lose. We had a very good case built but did not end up winning. We’ll try again next year, but as you said there’s no guarantee even if you have a really good case. The government can do what they want.
If you want good public services and infrastructure, then you’re going to have to pay high taxes. In Kansas, we’re going broke because our governor decided not to tax LLC’s and LLP’s. The thought behind this idea was that it would lead to these businesses creating more jobs. Sounds nice in theory, but in reality, businesses don’t create jobs because they’re saving money on taxes. That money goes straight to the owners. Businesses create jobs when they’re growing and need additional people to support the growth. Because of this our state is going broke, which has led to a high sales tax (almost 10% in my county) and property taxes are going up as well to try to make up for the shortfall.
I wish LLCs didn’t have to pay income taxes in California. I’d be rich!
I like to fight for my rights every time there is something unjust. I could have used a lawyer to fight for me, but I am a property fiend and now all that’s happening around my properties. Using Zillow is easy for me to find a list of comparables to fill out and send in.
I’ve had MANY live conversations with the property assessor before. They yielded each year. In all, I saved around $15,000 in property taxes. It was fun, worth it, and I got to write about it to help other people fight their property taxes as well.
I live in Illinois where property taxes are crazy expensive. The monthly payment for property taxes almost surpasses the the loan payment. We pay $9,600 per year on a property valued at $320K. The property was purchased in March of this year at a price lower than the assessed value. We fought the taxes and got them lowered slightly for 2017; however, we plan to fight again next year. And, when I retire in 2020, we plan to relocate out of state. I don’t mind paying for roads, schools, etc. but this is insane.
I agree completely. We live four city blocks from Chicago and will have to leave when it comes time to retire. The taxation is a joke because we really have no representation or accountability in Illinois. No budget in years but the spending continues unabated. And I believe that there is only so much of an increase renters can carry. Recently the CEO of some Dollar Store entity said that consumer spending was way down because their clientele class has little to no financial margin due to Obamacare. They’re paying huge premiums and then have to pay enormous deductibles thereby erasing buying power. If people can’t afford to spend at the Dollar Store this country has a h-u-g-e problem. This advice may work in Sam’s part of the country but not the Chicago area. Renters here are hanging by a thread.
I would agree about the Il/Chicago property tax issue. Our taxes are almost the highest in the country but our schools aren’t the best! Why are we not demanding WAY better schools due to our high taxes…I’m sure it has to do with the high pensions, etc. we are stuck paying. We are ruining a great city! So sad…
I agree. I live in the Chicago suburbs (st. Charles) and my property tax rate is actually 3% (not a typo) after contesting my taxes. I also will leave this state as soon as I am able to. Pensions are destroying Illinois
Speaking of pensions.
See: How Do I Calculate The Value Of My Pension?
Mary, thanks for sharing the really insightful datapoint about what the Dollar Store CEO said! Fascinating, and I agree with the conclusion that if consumer spending is down at the Dollar Store, the consumer may be tapped out.
But what about this positive thought: Consumers are actually FLUSH with cash and are spending at Prada, Gucci, and Chanel instead of at the Dollar Store, hence why sales are down.
We have higher interest rates, higher property taxes, higher health care premiums and the stock market is reaching new all-time highs every day. Perhaps things aren’t as bad as they seem, otherwise, prices would be lower and renters would vote for LESS gov’t spending so rents can also be lower.
It’s possible and would need data to support the hypothesis, but do you really think the populist Trump voters are shopping at high end stores because they’re flush with cash?!! I daresay the only ones doing that are the Chinese/Asians outside all of the six-figure earning Lake Wobegon people living exclusively in their ultra liberal blue zone bubbles.
So, I think maybe you’re missing the major problem with continuously rising living costs. Its widening inequality. Already, an amazing 65% of SFers are forced to rent because of how outrageously expensive it is to live there. More rent increases will decrease the number of renters on the margin and since they can’t afford to buy property, they will emigrate to cheaper places to live because a busywork job in Silicon Valley is not the be all, end all to life. At some point — if not stopped — the eventual extreme concentration of wealth into a small minority of property owners will turn effectively elitist. Frankly, SF is past the point of no return just as Tokyo, Los Angeles, Chicago, Miami, London, Sydney, etc. all are. Only outright government and political incompetence on the level of Detroit can lower living costs ever be possible.
Just throwing it out there. Unlikely, but consumers do love to spend more than they earn when they are employed and the economy is doing well. It’s why credit cards are such big business.
The question is: If it is really “outrageously expensive” to live in SF, why would 81.1% of the SF voting population vote to raise property taxes to pay for the $3.5B BART train bond? They know it will just increase rents further. If rents are unaffordable, then voters would rationally vote for LESS government spending, which will at least slow down the pace of property tax hikes that get passed on to the renter.
I’ve slowly come around to the belief that the majority of people renting/buying property are NOT hurting. I’ve given over 500 Uber rides to ask at least 250 people of all sorts of life about their cost of living situation in SF, and the large majority say it’s fine! They make due w/ roommates, or relocate to cheaper areas of SF etc. Income is booming here.
See: Abolish Welfare Mentality: A Janitor Makes $271,000 And So Can You
Well, “outrageously expensive” goes hand in hand with “outrageous salaries”. “Outrageous” in this case means relative to the real, normal, ordinary, none-Ivy League world which isn’t sucking the teat of a Silicon Valley experiencing a Venture Capital and Crowdfunding bubble. So if SF is where the high paying jobs are and people have to immigrate there to get it, you don’t expect them to emigrate back out unless it is for other reasons than having a job (i.e. to raise a family, disability, retirement, etc.). So they’re going to rationalize their situation and try to improve their local environment as best as they can, especially if they don’t feel they are the “rich” that has to pay those taxes.
Having to live with roommates, relocating with lengthy commute times, having to use shoddy/subpar public transportation, etc. are all negative consequences of rising living costs, i.e. a lower standard of living. That a majority claim to be “fine” with this doesn’t mean they’re actually getting ahead. Ultimately, it all comes down to how much people can save after their “outrageous” expenses, right? Was there any evidence that the majority of those 250 people were any better off than the average of at/under $45K in retirement savings for those under 40?
Who knows what the 250 or so people I talk to feel in relation to other retirees. The average ride was less than 25 minutes. My point is that whether you are “rich” or middle class or poor, the quality of life is more similar now thanks to technology and an overall great environment. I can assure you that the janitor and most of the six-figure city employees did not go to Ivy League institutions.
Can you remind me again of your situation? I’d love to get some context of where you’re coming from. You can start a new thread.
Sounds like a good plan to retire in a lower tax state and rent. I tried, but I’m locked in b/c there is so much excitement and opportunity in SF now that I’ve decided to continue to pay my $50,000 a year in total property taxes.
Fellow Illinoisan here. I have to agree we get nothing for our taxes in Illinois. If our neighbors in Indiana and Iowa can pull off property taxes that are something like 1/3 of ours for income taxes that are only slightly higher while having better schools and less corruption, why can’t we? I know what my take on it is, the outrageous spending and the refusal by our legislature to deal with the Pension crisis. Corruption doesn’t help either…Chicago red light cameras and parking meter “privatization” anyone?
(Side note-during the “temporary” hike to 5%, Illinois actually had higher income taxes for median income workers than both Illinois and Iowa)
*(I meant to say Illinois actually had higher income taxes for median income workers than both Indiana and Iowa)
Better schools in NW Indiana? Is that a joke? Maybe if you’re comparing some schools in the southern suburbs to Munster. But the schools in the North Shore are vastly superior to schools in NW Indiana and there’s trains to the city in almost every Illinois suburb, instead of having to drive to Hammond to take the train to the city. Also many counties in Indiana have extra county income tax and Indiana taxes your retirement, unlike Illinois.
“I now believe it’s logical behavior to keep on voting for increased government spending because we all want better and we’re willing to pay for it.”
I wouldn’t call it logical behavior to want to pay more money especially if you’re giving your money to a government that mismanages money.
Places like NYC and SF are some of the highest in the country (SF’s budget is 9 billion and as far as NYC is concerned, they operate in the red all the time.
I’d rather pay less property taxes to a place that manages their money appropriately.
I think it’s great renters are willing to pay higher rents to support their city. There will be less disatisfaction when they know their rents are going to taxes.
Further, the landlords can often increase the rent beyond the property tax increase. Also, higher property prices enrich the homeowner.
Who loses here?
Renters lose when they pay a premium to enjoy temporary, impaired use of property, and in the end have nothing to show for it. Mortgages in this country typically end after 15 or 30 years but rent goes on forever and ever, while the renter builds no credit and no wealth. I’m fascinated that renting is where you pay more in order to get less. (rolleyes)
How many people that rent have lived in the same place for 15-30 years or plan to live in the same place for 15-30 years? Probably very few. If I knew I planned on moving often I would rather rent.
I think its all about the quality of management. Granted San Francisco does demand a lot from property taxes, but they also have some breathtaking public spaces. I flip out whenever I visit Golden Gate Park. The same cannot be said for many other cities that acquire lots of money through taxes, but somehow do not improve their public municipal space or let their infrastructure slowly die as thoroughly as Los Angeles has.
Some cities have dumpy downtowns, others are pretty beautiful. The response times in some cities are fast while others are slow. Landlords are usually pricks when high tenants > available rooms in the city and manage poorly while raising rent happily. But landlords are total sweethearts when the entire city is made up of available rooms > possibly tenants that they’re willing to negotiate down rents regularly, upgrade living areas and appliances when ‘house for sale’ and ‘rooms for rent’ are posted on every other street nearby their own home(s). It is human nature to do this.
As for property taxes paying for the have-nots? I really don’t see the have-nots in very expensive sections of some cities, yes they are plentifully found in the outskirts found almost an hr away. In fewer populated cities yes the haves and have-nots bump into each other daily at stores, buildings but in very expensive rich cities I’ve yet to see have-nots in my daily life. Maybe the exception of one every month or so. Maybe I’m missing something or need correcting?