Lowest Property Tax States For Rental Property

Lowest Property‑Tax States for Rental‑Property (2026)

Why property tax matters to landlords

Property tax is a recurring expense that directly reduces the net cash flow from a rental unit. Unlike mortgage interest or insurance, the tax rate is set by state and local jurisdictions and is applied to the assessed value of the property each year. For investors who own multiple units or high‑value homes, even a small difference in the effective tax rate can translate into thousands of dollars of additional profit (or cost) over the life of the investment. Consequently, understanding which states have the lowest effective property‑tax rates helps landlords evaluate potential markets, forecast operating expenses, and compare the total cost of ownership across jurisdictions.

National benchmark

According to the U.S. Census Bureau's 2023 American Community Survey (5‑year estimates), the national average effective property‑tax rate is 0.97 %. The median home value nationwide is $318,381, resulting in a median annual property tax of $2,993.

Top 10 states with the lowest effective property‑tax rates for rental‑property

Rank	State	Avg. Effective Property Tax (%)	Median Home Value	Est. Annual Tax
1	Hawaii property tax	0.27 %	$808,200	$2,183
2	Alabama property tax	0.38 %	$195,100	$738
3	Nevada property tax	0.49 %	$406,100	$1,970
4	Colorado property tax	0.49 %	$502,200	$2,448
5	Puerto Rico property tax	0.50 %	$124,600	$627
6	South Carolina property tax	0.51 %	$236,700	$1,199
7	Arizona property tax	0.52 %	$358,900	$1,858
8	Delaware property tax	0.53 %	$326,800	$1,731
9	Utah property tax	0.53 %	$455,000	$2,412
10	Idaho property tax	0.53 %	$376,000	$2,006

Source: According to the U.S. Census Bureau's 2023 American Community Survey (5‑year estimates). Effective tax rates are calculated as the median annual property tax divided by the median home value for each state.

How the rates affect rental‑property economics

Cash‑flow impact: In Alabama, the estimated annual tax of $738 on a median‑value rental home represents roughly 0.38 % of the property's market value. For a landlord with a $200,000 investment, this translates to an annual expense of less than $800, leaving a larger share of rental income available for operating costs, debt service, and profit.
High‑value markets with low rates: Hawaii’s effective rate is the lowest in the nation (0.27 %). However, the median home value of $808,200 results in a higher absolute tax bill ($2,183) than many lower‑value states. Investors in high‑price markets must weigh the low percentage against the larger tax dollar amount.
Mid‑range markets: States such as Nevada, Colorado, and Utah combine moderate median home values with low effective rates (~0.49‑0.53 %). The resulting annual taxes ($1,970‑$2,448) are close to the national median but are achieved with a lower tax burden relative to property value, which can improve return‑on‑investment (ROI) calculations.
Territories: Puerto Rico’s inclusion reflects its status as a U.S. territory. Its effective rate (0.50 %) and low median home value ($124,600) produce the smallest estimated annual tax ($627), which may be attractive for investors seeking low‑cost entry points.

Practical considerations for landlords

Assessment practices vary – Even within low‑tax states, local jurisdictions may reassess properties at different intervals, affecting the actual tax bill from year to year.
Tax‑base exemptions – Some states offer exemptions or credits for rental properties, senior housing, or historic preservation. Those provisions can further reduce the effective tax rate for qualified owners.
Operating expense ratios – Property‑tax expense is a component of the overall operating expense ratio (OER). A lower OER improves the capitalization rate (cap rate) used to value rental assets.
Financing implications – Lenders often factor property‑tax estimates into debt‑service coverage ratio (DSCR) calculations. Lower taxes can make a property more attractive for financing, potentially allowing higher leverage.

Conclusion

Based on the most recent ACS estimates, the ten states and territory listed above provide the lowest effective property‑tax rates for owners of rental housing. While a low percentage can reduce the relative tax burden, landlords should also consider absolute tax amounts, local assessment policies, and any available exemptions when evaluating a market for investment.

All figures are derived from the U.S. Census Bureau’s 2023 American Community Survey (5‑year estimates) and reflect median values for each state.

Lowest Property Tax States For Rental Property