Now that homeowners have experienced multiple tax cycles under the 2017 Tax Cuts and Jobs Act, many have been confronted with a reduced ability to write off state and local taxes, which means property tax rates have become a more visible part of buyers’ budgets. That’s why a recent article by WalletHub that ranks U.S. states and the District of Columbia in terms of their property tax rates is worth a close look, especially for real estate professionals in Houston.
Texas ranked as the state with the seventh highest property tax rates, with an effective real estate tax rate of 1.8 percent. The annual taxes collected on a $205,000 home (the median value for a home in the U.S.) were $3,703. Looking specifically at the state’s median home value of $161,700, Wallethub estimated that Texans would pay $2,922 in taxes on a home of this value. When compared to Alabama, the state with the second lowest property tax rate, owners of homes at the state median value ($137,200) were estimated to pay only $840 in annual taxes.
Based on data from the U.S. Census Bureau, Wallethub estimated that “the average American household spends $2,375 on property taxes for their homes each year.”
Wallethub also asked a panel of “property-tax experts” about the importance of property tax rates and how they apply to different consumer groups. A key question for real estate professionals was whether people consider property taxes in the process of deciding where to move.
Of the three experts who answered this question, all agreed that property taxes are important to factor in while buying a home. Two respondents noted that, in the past, fewer buyers paid attention to property taxes, but with new tax laws in place at the federal level, many have had to adjust their budgets and be flexible during the homebuying process.
“Traditionally, property taxes were not an incredibly important consideration for people deciding to move from one location to another,” said Andrew D. Appleby, an assistant professor of law at the Stetson University College of Law. “After the TCJA, state and local taxes generally are often now an overriding consideration in the relocation decision.”
Paula R. Worthington, a senior lecturer and academic director at the University of Chicago’s Harris School of Public Policy, observed that “lots of empirical evidence suggests that people are willing to pay more for houses with low property taxes than for similar houses with higher property taxes, assuming the schools and other local public services are similar. So, house prices, property taxes and local public services are closely related.”
Also, real estate professionals should be ready to factor this into their budget conversations with first-time homebuyers.
Mitchell Franklin, an associate professor of accounting at the Madden School of Business at Le Moyne College, warned that “in a high tax state, it is not uncommon for monthly property taxes to be as much as a mortgage payment.”