Hawaii is the only state with no property tax on real estate
Hawaii does not levy a property tax on real estate. Homeowners and landlords in Hawaii pay no annual tax based on the value of land or buildings. This is unique in the United States — every other state collects some form of property tax on real property, though the rates and what is taxed vary widely.
Hawaii replaced its property tax system in 1973 with a different revenue model. The state relies instead on general excise taxes (a sales-like tax on most transactions), income taxes, and other fees. This shift was designed to reduce the tax burden on property owners, particularly in a state where real estate values are exceptionally high.
Key Takeaways
- Hawaii is the only U.S. state that does not tax real property; all other states collect property tax at varying rates.
- Hawaii funds state services through general excise taxes and income taxes rather than property taxes.
- Even in Hawaii, you may still owe property-related taxes such as conveyance taxes when buying or selling real estate.
- Property tax rates in other states range from under 0.3% to over 2% of assessed property value annually, depending on location.
- States with the lowest property tax rates include Louisiana, Alabama, and West Virginia, though all three still collect some property tax.
How Hawaii's tax system works without property tax
Hawaii's general excise tax (GET) is a 4% tax applied to most sales of goods and services within the state. This tax is broader than a typical sales tax — it applies to wholesale transactions, rental income, and many services that other states do not tax. The state also collects income tax on wages and business income, which funds schools, infrastructure, and public services that property taxes fund in other states.
Residents and businesses in Hawaii still pay taxes on property transactions. When you buy or sell real estate in Hawaii, you owe a conveyance tax (typically 0.5% of the sale price). Property owners also pay annual assessments for water, sewer, and other utilities, which are separate from property tax. These fees are not property tax but are costs tied to property ownership.
States with the lowest property tax rates (outside Hawaii)
Since Hawaii is the only state without property tax, the next tier consists of states with very low rates. Louisiana has the lowest property tax rate among states that collect it, at roughly 0.55% of assessed property value. Alabama and West Virginia follow, each around 0.6% to 0.7%. Mississippi, Arkansas, and Oklahoma also rank among the lowest, typically between 0.7% and 0.8%.
These rates are statewide averages and do not reflect local variation. A county or city within a low-tax state may impose additional property tax, raising the effective rate. Conversely, some counties in higher-tax states may be below the state average. The only way to know your actual rate is to check your local assessor's office or county tax collector.
Why other states still use property tax
Property tax is the primary funding source for local schools, fire departments, police, and road maintenance in most of the United States. When a state eliminates property tax, it must replace that revenue through other means — sales tax, income tax, or fees. Hawaii chose this path, but most states have kept property tax because it is a stable, predictable revenue stream that does not depend on economic cycles the way sales and income taxes do.
Property tax also allows local communities to control their own funding. A school district or county can raise its property tax rate (within state limits) to pay for specific projects without waiting for state approval. Removing property tax would shift that control to the state level, which many communities resist.
How property tax is assessed in states that collect it
In states other than Hawaii, property tax is calculated by multiplying the assessed value of your property by the local tax rate. The assessed value is not always the market value — assessors use formulas that may be based on recent sales, income the property generates, or a percentage of market value. A home worth $300,000 might be assessed at $150,000 in one state and $280,000 in another, depending on the assessment method.
Tax rates are expressed as a percentage or as a dollar amount per $1,000 of assessed value. A rate of 1.2% means you pay $1,200 per year on a property assessed at $100,000. Rates vary by county and municipality, so two homes of equal value in different parts of the same state can have very different tax bills. Some states cap how much the assessed value can increase year to year, which protects long-term homeowners from sudden spikes.
What happens if you own property in Hawaii
If you own a home or rental property in Hawaii, you do not pay annual property tax. You will, however, owe a conveyance tax when you purchase the property (typically 0.5% of the purchase price). You will also pay annual fees for water, sewer, and waste services, which appear on a separate bill from property tax.
Renters in Hawaii do not pay property tax directly, but landlords do not either. This does not mean housing is cheaper — Hawaii has among the highest real estate prices in the nation. The lack of property tax is offset by high general excise taxes, which apply to rent and most other purchases. A renter's overall tax burden may not be significantly lower than in other states.
Frequently Asked Questions
Do I have to pay property tax if I own land in Hawaii?
No. Hawaii does not levy property tax on real estate. You will owe a conveyance tax when you buy the property and annual utility fees, but no annual property tax based on the land or building value.
What is the highest property tax rate in the United States?
New Jersey has the highest average property tax rate, around 2.1% of assessed property value. Illinois, Connecticut, and Vermont also have rates above 1.8%. Rates vary by county and municipality within each state, so some areas may be higher or lower than the state average.
Can I deduct property tax on my federal income tax return?
Yes, if you itemize deductions on your federal return. The deduction is capped at $10,000 per year for state and local taxes combined (including property tax, income tax, and sales tax). This limit has been in place since 2017.
If Hawaii has no property tax, is it cheaper to live there?
Not necessarily. Hawaii compensates for the lack of property tax through a 4% general excise tax on most purchases and transactions, plus income tax. Housing costs are also among the highest in the nation due to limited land and high demand. Your overall tax burden depends on your income, spending, and property value.
What states have the lowest property tax?
Louisiana has the lowest rate at roughly 0.55% of assessed value. Alabama, West Virginia, Mississippi, Arkansas, and Oklahoma all have rates below 0.8%. These are statewide averages; your actual rate depends on your county and local assessments.