As Home Values ​​Rise, Property Tax Breaks Shift the Burden to New Home Buyers

A result of the evaluation limit contained in California Proposition 13, the disparity in tax bills for new owners and long-term owners in San Diego grown by $600 last year alone, as property values ​​increased, and they increased by more than $2,000 in five years, according to the 50-State Property Tax Comparison Study.

Assessment limits restrict the growth of a home’s assessed value for tax purposes, generally allowing a property to be assessed at full market value only after it has been sold. Over time, as the value of a home increases, its owner receives increasingly greater tax relief. New and recent home buyers offset these tax breaks by paying higher bills. San Diego is one of 29 major cities with assessment boundaries analyzed in the study. In these cities, long-time homeowners receive an average tax break worth $1,600a 30% reduction in tax bills for new owners.

Produced annually, the 50-State Property Tax Comparison Study provides the nation’s most comprehensive analysis of local property tax rates by calculating the effective tax rate (tax paid as a percentage of market value) for 74 major US cities and one rural municipality in each region. State. The study takes into account property tax exemptions, credits, assessment accuracy and other factors to provide meaningful comparisons of tax rates and bills for residential, commercial and industrial properties. It also analyzes the main factors behind differences in tax rates between cities.

One of the biggest factors in varying tax rates is the extent to which each city relies on property tax. In Bridgeport, Connecticutfor example, residents pay one of the highest effective property tax rates on a median value home, but they pay no local sales or income tax. Birmingham, Alabamain contrast, has some of the lowest effective property tax rates, but its residents pay far more in total local taxes than from Bridgeport—$3,201, per capita, compared to $2,221 in Bridgeport—because birmingham also relies on local sales and income taxes.

A second major factor in varying tax rates is the difference in property values ​​in different markets. Cities with high land values ​​can collect the same revenue at a lower rate than cities with low land values. For example, to collect $3.424—the average amount collected for a median-value home in the study—the effective property tax rate is expected to be 20 times higher in Detroitwhich has the lowest home values ​​in the study, than in San Franciscowhich has the highest house values.

Other factors that cause property tax rates to vary include different levels of local government spending and differences in how various classes of property, such as residential, commercial, and industrial, are treated relative to each other.

The study found that among the largest cities in each state, the average effective tax rate on a newly purchased median-value home was 1.3% in 2021, with wide variations from city to city. other. Three cities had effective tax rates that were at least double the national average, and eight had rates less than half the average.

Highest and lowest effective property tax rates
on a newly purchased median value home (2021)

The highest property tax rates

The lowest property tax rates

1

Detroit (MI)

3.27%

Why: Low land values

49

Charleston (WV)

0.59%

Why: Low reliance on property tax, classification shifts tax to business

2

Newark, New Jersey

3.23%

Why: Heavy reliance on property tax

50

Denver (CO)

0.53%

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

3

Aurora (IL)

3.11%

Why: Heavy reliance on property tax

51

Boston (Massachusetts)

0.51%

Why: High home values, classification shifts tax to businesses

4

Portland (GOLD)

2.62%

Why: Assessment limit shifts tax to newly built homes

52

Charleston (SC)

0.49%

Why: Classification shifts tax to businesses, high home values

5

Milwaukee (WI)

2.48%

Why: Low land values

53

Honolulu (HI)

0.30%

Why: High home values, low local government spending, classification

The study also finds significant variation in effective tax rates for commercial properties such as office buildings. In 2021, the average tax rate on a $1 million building was 1.9% in each state’s largest city. Detroit and Chicago had the highest rates, more than double the national average, and Cheyenne, Wyomingand Seattle had the lowest rates, at less than half the national average.

Highest and lowest effective property tax rates on $1 million Commercial property (2021)

The highest property tax rates

The lowest property tax rates

1

Detroit (MI)

4.21%

Why: Low land values

49

Boise

0.97%

Why: Low local government spending, high real estate values

2

Chicago (IL)

3.78%

Why: High local government spending, classification shifts tax to business

50

Birmingham (AL)

0.88%

Why: Low reliance on property tax

3

Providence (RI)

3.53%

Why: Heavy reliance on property tax

51

Charlotte (NC)

0.87%

Why: Low reliance on property tax

4

Des Moines (IA)

2.91%

Why: Low land values,

Heavy reliance on property tax

52

Seattle, WA)

0.82%

Why: High land values,

Low reliance on property tax

5

Kansas City (MO)

2.84%

Why: Low land values,

Heavy reliance on property tax

53

Cheyenne (WY)

0.69%

Why: Low reliance on property tax

The report is available for download on the Lincoln Institute website: https://www.lincolninst.edu/publications/other/50-state-property-tax-comparison-study-2021

The Lincoln Institute of Land Policy seeks to improve the quality of life through effective land use, taxation, and management. A private, not-for-profit operating foundation whose origins date back to 1946, the Lincoln Institute researches and advocates creative approaches to the earth as a solution to economic, social and environmental challenges. Through education, training, publications and events, we integrate theory and practice to inform public policy decisions around the world.

The Minnesota Center for Fiscal Excellence was founded in 1926 to promote sound fiscal policy, efficient spending, and responsible government. As a nonpartisan, nonprofit group supported by membership dues, the center pursues its mission by educating and informing Minnesotans about sound fiscal policy; provide state and local decision-makers with objective, non-partisan research on the impacts of tax and spending policies; and advocate for the adoption of policies reflecting the principles of budget excellence.

SOURCE Lincoln Institute of Land Policy

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