Property taxes are an important source of revenue for US state and local governments. They help communities fund public services like roads, parks, police, and K-12 education. In 2022, state and local governments collected a total of $627 billion in property taxes.
Local governments rely more heavily on revenues raised from property taxes than states. Property taxes represented about 27 percent of local revenue in 2022, but made up less than 1 percent of state tax revenue.
Local governments’ methods in assessing the value of properties, and differences in the availability and use of some property tax relief programs, can result in very different tax burdens for two homeowners within the same locality.
Property taxes are often considered more transparent than other types of taxes because people can see how the money supports local services. But that same visibility also makes them more noticeable—and more likely to draw criticism.
With home values rising sharply in recent years, many homeowners have started to feel the impact—prompting lawmakers in some states to focus on property tax relief.
What are property taxes?
Property taxes are collected on two types of property:
- “real” property, such as houses, land, or commercial buildings and land, and
- personal property, including things like your car or business equipment.
Generally, cities, counties, and school districts tax real property, while states typically tax personal property.
Are property taxes fair?
Not always. In theory, property taxes seem fair: those owning the same type of property, similarly situated and priced, would typically pay the same property tax rate, and those with higher priced properties would pay more.
But local governments’ assessments of real property values vary widely across the US and some tax relief programs can further distort property values. This uncertainty and lack of transparency in the application of property taxes can make its fairness harder to pin down.
Generally, local governments determine, or assess, a property’s value by estimating the property’s sale price in a transaction between unrelated parties. However, property owners with the knowledge and ability can usually appeal, or argue that the assessment value—and subsequent property taxes—should be lower.
Further, some studies show that, in practice, property tax assessments (and outcomes from appealing them) can disproportionately burden Black and Latino households by over assessing their homes compared with similar homes of White households. This means that Black and Latino households could be paying more in property taxes than White households on homes worth similar amounts.
For these reasons, property taxes do not impact everyone in the same way. They are not as fair as they seem.
How do state and local governments lower real property tax bills?
There are many ways that state and local governments can lower real property tax bills for their residents, including using assessment limits or tax exemptions, deductions, credits, and deferrals. Some efforts target certain types of taxpayers, like older adults or renters, and some are designed to lower everyone’s real property taxes.
Assessment limits, for example, prevent a property’s assessed value from increasing by more than a fixed percentage. Generally, this sets a property’s assessed value below its market value, preventing rapid property value increases from significantly raising the owner’s property tax bill.
Homestead exemptions or deductions decrease the total amount of a property’s value that can be taxed by a fixed dollar amount.
“Circuit breaker” programs limit property tax bills based on a person’s income. In many states, they provide tax relief for older adults and those with low incomes.
Property tax deferrals allow homeowners ages 65 and up and homeowners with disabilities to defer tax payments until the sale of the property or the death of the homeowner.
Further, the District of Columbia and some states offer property tax relief to renters too. This is because property taxes imposed on owners with rental units may be passed onto renters in the form of higher rent payments.
Property taxes play a vital role in funding local governments, supporting services that people and businesses rely on every day. To preserve this essential revenue source, policymakers should aim for a system is transparent, efficient, and that distributes burdens fairly.
