Published on August 14th, 2020 | by Bibhuranjan0
Which City Pays the Lowest Property Taxes in North America?
The North American real estate market is very attractive for home owners and investors, but the cost of owning a home in these cities can be steep. One potent contributor to the cost of home ownership in North America is property taxes. Depending on where you live, this cost can either be insignificant or very burdensome financially.
Interested in knowing which city pays the overall lowest effective property taxes in North America?
Property tax is calculated by assessing the value of a property and multiplying it by the property tax rate of the municipality, region or state where the property is located. Often, property tax is a source of tax revenue for the local government and is used to fund the police department, schools, for road maintenance and other such tasks.
Official Property Tax Rate is calculated as the coefficient of the municipal assessed value of the property, while the Effective Property Tax Rate is calculated as the percentage of a property’s market value that is paid in property taxes (total taxes paid/home market value) yearly.
Since the property tax assessment of residential properties is not public information, homebuyers face the unique challenge of not knowing the estimated property tax for a new home. Especially when on a budget, spending a lot of money on homes in high property tax regions might not be a good idea and it could lead to negative cash flow for investors or decreasing the financial power of the homeowner.
In the United States, all 50 states pay different effective property taxes; with tax rates set by the local governments.
Based on the Tax Foundation’s Estimation, the state with the lowest effective property tax rate is Hawaii; at 0.29% and per capita property tax of $1,069; while the highest effective property tax rate is paid in New Jersey, at 2.16% and per capita property tax of $3,074.
Wondering why Hawaii has such low property tax rates? A notable reason is that the state offers significant exemptions on owner-occupied primary residencies, known as the home exemption. This exemption value can range from $80,000 to $160,000, after which the rest of the assessed property value is taxed!
Property taxes in Canada are assessed and regulated by the assessment authority of each province.
Some of the lowest municipal tax rates in Canada are: 0.2925% for Vancouver, BC property tax, 0.33% for Richmond BC, 0.5997% for Toronto, 0.75% for Calgary, Alberta and 0.93% for Edmonton, Alberta. These rates are calculated based on the assessed home value. Low property taxes, mild weather as well as low realtor commissions in BC, make the real estate investment attractive in this Canadian province.
However, in many provinces, property market value is higher than its assessed value. For example, a Vancouver, British Columbia resident with a condo market value of $1M (and property tax rate of 0.2925%) ought to pay $2,925 in official property tax. Instead, property tax is likely to be closer to $3,500, resulting in an effective tax rate of 0.3525%. This is still very low compared to other Canadian cities.
Another city with very low property tax in Canada is Richmond (a city in Metro Vancouver), British Columbia. Here, the effective property tax is also about 0.29%.
Some of the reasons for British Columbia’s remarkably low property tax rates include mild weather (especially in Vancouver BC), which means less pressure on the use of property taxes due to lower maintenance needs. Again, Vancouver’s high population density means the property tax burden can be shared among residents, leading to lower effective property tax payment for all residents.
- In summary, the regions that pays lowest property taxes are:
-United States- Hawaii (0.29%)
-Canada- Greater Vancouver Area (0.29%)
- While Hawaii and British Columbia are the state/province with the lowest effective property tax rates, Richmond, British Columbia, surprisingly pays the lowest property tax overall in North America.
- Reasons for these low property taxes include owner-occupied tax exemption in Hawaii, high population density and mild weather in Vancouver BC.
Anne Barry is the senior editor at wowa.ca; she loves writing on Real Estate, Personal Finance and money saving tips. She is passionate about travelling and exploring different places, and enjoys spending her time with her family.