Taxes are serious business. As an investor, you already know that if you’re not careful, taxes can quietly take a big bite out of your returns. But with the right knowledge and strategy, you can stay ahead—and maybe even lower your tax burden altogether. That’s probably why you’re asking the big question: “What states don’t have property tax?” Because let’s be honest—states without property taxes would change everything for investors.
In this article, we’ll break down how property taxes work in different states, whether there are any that actually skip them, and what that means for your investment strategy. Stick around—we’re breaking it all down.
Main Takeaways
- To answer, “what states don’t have property tax,” no state is completely free from property taxes, but some—like Hawaii, Alabama, and Colorado—have notably lower rates.
- Some of the states with the lowest property taxes, like Hawaii, tend to have exponentially high property values, so their mortgage rates may be higher. While investors can deal with lower taxes, they could face steeper costs in these states in other ways. In other words, property taxes aren’t necessarily the end all, be all of your expenses as an investor.
- Investors can maximize their tax benefits through deductions, depreciation, and 1031 exchanges, ensuring more of their earnings stay with them.
What is Property Tax?
As a property management company in Baltimore, we can tell you that property taxes are money you pay to the government every year for owning land or a building. The amount depends on how much your property is worth, as well as the jurisdiction you’re located in.
This brings us to the next question: Are property taxes universal, no matter where in the US you are, or are there states without property tax altogether?
Is There Any State with No Property Tax at All?
No, unfortunately, there isn’t a state in the U.S. that completely gets rid of property taxes. So, if you’ve been googling what states don’t have property tax, the short answer is: none. Every state has some form of property tax. This is because it’s one of the main ways local governments pay for things like schools, police, fire departments, and public roads.
While there are no states without property tax entirely, some offer much lower rates than others. Those are some of the ideal places to invest, right? For example, states like Hawaii, Alabama, and Colorado are known for having some of the lowest average property tax rates in the country. But then you have places like New Jersey and Illinois, where the rates are much higher.
However, besides the taxes, there are a few other things you need to think about before investing. You’ve got to look at the location, the average property prices, and yes—those tax rates too. So, let’s jump into a few property tax comparisons.
State with the Lowest Real Estate Property Tax
Now that we’ve established that all states require property owners to pay a certain percentage in taxes, it’s helpful to understand how those rates vary. If you’re investing in Baltimore, for example, knowing how Maryland compares can help you make smarter decisions. Let’s check out the state with the highest and lowest property taxes. Then, we can see where Maryland (Baltimore County) falls in between.
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Hawaii (Lowest)
Hawaii has the lowest property tax rate in the U.S., sitting at just 0.31%. That means for every $1,000 of property value, you’re only paying about $3.10 in taxes each year. Sounds like a win, right?
Well, not so fast—homes in Hawaii are some of the most expensive in the country. So, even though you’d have to deal with lower taxes, your mortgage would likely be on the bigger side, as a tradeoff. There’s no such thing as a free lunch.
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New Jersey (Highest)
New Jersey has the highest property tax rate of 2.23%. While the typical home value is around $542,608, the steep rate leads to an estimated annual tax of $12,100. This means that even though homes aren’t as expensive as in Hawaii, New Jersey homeowners still end up paying more in property taxes because of the high rate.
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Maryland (In the Middle)
On average, homeowners in Maryland pay about 1.02% of their home’s value in property taxes. That’s slightly above the national average, which sits at around 0.90%. With a typical home in Maryland valued at about $419,949, that works out to $4,283 per year in property taxes.
Of course, this number can shift depending on your home’s value and where exactly you’re located within the state.
On another note, it’s worth knowing that Baltimore County offers numerous tax credits for investors, like the High-Performance Homes credit, the Enterprise Homes credit, and Energy Efficiency Home credit. So, you could have access to programs that lower your taxes even further.
How to Maximize Your Tax Benefits
If you’re looking to make every dollar count, the real magic is in the details. How you structure your investment can mean the difference between average returns and real growth. Here are a few smart ways to keep more of what you earn:
1. Know the State and Local Tax Rules
Every state has its own way of doing things. Even in states with low property taxes, there might be other hidden costs—like income taxes or local levies. So, do your homework or work with a local expert to understand the full picture before making a move.
2. Use Tax-Advantaged Accounts (If You’re Buying Through an Entity)
If you’re investing through a business or even something like a self-directed IRA, there are ways to set things up, so you get some tax breaks. In simple terms? You don’t have to pay taxes upfront. So, your money has more time to grow in the meantime.
3. Track Expenses for Deductions
You might be surprised by what counts as a write-off—things like your mortgage interest, repairs, property management fees, even trips you take to check on your rental all can count. The key is to meticulously keep track of everything, cent by cent. The better your records, the more you can claim—and that means more money staying with you, not the IRS.
4. Take Advantage of Depreciation
Here’s a perk many new investors overlook: the IRS actually lets you depreciate your property over time. That means you can lower your taxable income—even if your property is going up in value. It’s one of real estate’s best-kept secrets, and it can seriously boost your bottom line. So, you should learn just how to calculate and claim it.
5. Use a 1031 Exchange to Keep More of Your Profits
Thinking of selling and reinvesting? A 1031 exchange lets you skip paying taxes on your profits—for now—as long as you roll that money into another property. It’s a smart move that helps you grow your portfolio without giving the IRS a cut just yet. In fact, many cite it as one of the best multifamily exit strategies.
Want to Work Smarter, Not Harder? Let BMG Help!
Sad to say, property taxes are part of the deal when you invest. Even though there are no true states without property tax, some places offer significantly lower rates (or property values). What’s more, having the right setup can help you save even more.
At Bay Property Management Group, we don’t just manage properties—we help real people make better investment decisions. We can analyze the nuances and needs of your specific market, tailor targeted marketing campaigns to it, calculate the right rental rates for your situation, screen for qualified tenants, calculate tax savings, and more. After all, our team has years of experience managing 6,000 homes in Maryland, Pennsylvania, D.C., Northern Virginia, and beyond. So, you can rest assured your property is in good hands. And all the while, you can have a more passive investment. Contact us today to get started!
