Americans don’t like taxes, and the federal income tax was once the most despised. But that changed 35 years ago. Since then, surveys show that property taxes are loathed above all others.
- Payments must be made in large lump sums by homeowners who either have no mortgage or do not wrap property taxes into their monthly mortgage payment. Unlike sales taxes that are paid in small increments or income taxes that are withheld from paychecks, property tax bills come with a large sum due—and it is often a bigger tax bill than any other.
- Taxpayers can’t control the amount. Unlike sales taxes and income taxes, which are determined by taxpayer actions, the property tax is based on property value, and no amount of tax planning can reduce it. Also, property taxes are not tied to income; losing your job changes your income tax but not your property tax bill.
- And, most important, property values have gone through the roof over the past 30 years, with median home prices more than tripling since 1992.
(U.S. Census Bureau and U.S. Department of Housing and Urban Development, Median Sales Price of Houses Sold for the United States, retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MSPUS, May 1, 2023.)
The pandemic further exacerbated housing costs. High prices spread from cities to rural areas as remote workers moved across the country fueling new demand for housing. With the greater demand, prices skyrocketed. That might have been good news for people selling their houses, but homeowners experiencing financial difficulties were faced with steep tax bills.
For homeowners in 48 states and Washington, D.C., relief is available in the form of homestead exemptions or property tax circuit breakers.
Homestead exemptions come in two varieties: as a credit against the property tax due or as an exemption from tax on a portion of the property’s value. State eligibility requirements vary, but the exemptions commonly target people over age 65, veterans, people with disabilities and people who meet low-income thresholds. However, some states—California, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Minnesota, Mississippi, Montana, New Mexico, Utah, Vermont and certain localities in Pennsylvania—offer all homeowners an automatic exemption on a set amount of the value of their property.
Several states have unique homestead exemption programs. Wisconsin, for example, is the only state to offer homeowners a property tax credit that changes value based on gaming and lottery revenue collections.
Nebraska has a graduated exemption that increases in value as applicants’ incomes decrease. Massachusetts, Nevada and Texas have adopted a similar system for veterans with disabilities, where the exemption increases based on the degree of disability. Similarly, Hawaii has a basic homestead exemption of $40,000 for people under 60, but the amount increases for people in older age brackets.
In contrast, property tax circuit breaker programs are based on income and tailored to reduce the financial burden on low- and middle-income residents whose property taxes take a disproportionate bite out of their income. (The term “circuit breaker” was coined in the 1960s to describe programs that protect family income from property tax “overload” in the way an electrical circuit breaker protects a home from excessive current.)
An important distinction with circuit breakers: They can also provide relief to renters, who qualify based on their rental payments.
Some 29 states offer circuit breaker programs, with eligibility requirements varying widely. Sixteen states have age or disability requirements, or both, and the remaining 13 states have only maximum income limits as a requirement. Only 11 states offer circuit breakers for renters, a number that has dropped by 50% in the last 20 years.
Recent Legislative Action
Lawmakers continue to search for ways to reduce the property tax burden for homeowners.
Texas lawmakers proposed a relief plan that would lower assessed value caps, extend that cap to all property, and compress school district taxes. During the 2023 legislative session, Wyoming approved expanding its property tax relief program by raising the income limit to 125% of the state’s or county’s median income from the previous 75% limit. Lawmakers also added a circuit breaker for individuals whose property taxes exceed 10% of their income.
Georgia lawmakers provided one-time funds for its homeowner tax relief grant program to allow a $20,000 exemption on the assessed value of a property. North Dakota allowed homeowners to claim a $500 credit on their homes and expanded the homestead credit.
Higher interest rates and economic uncertainty in 2023 have helped put the brakes on the red-hot housing market, providing a brief respite from skyrocketing housing values. However, with years of appreciation reflected in current property assessments, the pressure on lawmakers to provide property tax relief remains intense.
Andrea Jimenez is a policy analyst in NCSL’s Fiscal Affairs Program; Mandy Rafool directs the program.