Property tax is an important consideration for Real Estate IRA investors because unlike income and capital gains taxes, property taxes are not deferred when the property is held within an IRA.
You must pay these taxes every year – even if you hold them within a retirement account such as an IRA or Roth IRA.
We just published our take on the highest property tax states in the country. But we don’t want to focus on the negative! So this article will focus on the states with the lowest property taxes in the country.
With that in mind, here are the ten lowest-property tax states, ranked from best to worst by property tax as a percentage of home values.
1). Hawaii – 0.29 percent.
2.) Alabama – 0.39 percent
3.) Louisiana – 0.51 percent
4.) West Virginia – 0.52 percent
5.) South Carolina – 0.54 percent
6.) Delaware – 0.55 percent
7.) District of Columbia – 0.57 percent
8.) Wyoming – 0.57 percent
9.) Colorado – 0.62 percent
10.) Arkansas – 0.62 percent
Note that these are state averages. Individual counties or boroughs within these states can and do charge higher rates. You’ll also have to account for insurance premiums and homeowners’ association or condominium association dues. These aren’t deferred by Real Estate IRAs either – you have to pay these costs every year.
Property Taxes Aren’t Everything
Property taxes, of course, aren’t the only thing Real Estate IRA owners are looking at. If you are drawing income out of your IRA you must also consider the effect of state and federal income taxes. For example, Hawaii has a very attractive property tax rate of 0.29 percent on average. But it also has a very high cost of living overall, and a substantial state income tax that goes as high as 11 percent. If you make $48,001 per year, your marginal state income tax in Hawaii is 8.25 percent, and the rate gets higher as income goes up.
So Hawaii might not be the best jurisdiction for you when it comes to drawing income out of your retirement account. It is, of course, up to you to balance property tax requirements, income taxes due on any money you take out of the IRA, sales tax and potential capital gains and risks in a way that suits your individual situation and financial goals. One possible solution could be to own property in a low – property-tax jurisdiction like Hawaii while personally residing in a low or no-income tax state such as New Hampshire, Florida or Texas. This gives you the best of both worlds – low property taxes in Hawaii and no state income taxes on income you take out of your IRA (or from any other ordinary income source, for that matter).
American IRA, LLC has published a library of articles with more information, including a state-by-state guide (still in progress) with a great deal of state-specific information of interest to self-directed IRA investors and retirees, including tax information, cost of living and housing information and many other important data points. You can access this state-by-state library at www.americanira.com.
At this writing, the list is still being worked on, but we have most of the eastern part of the country done at this point.
Alternatively, give us a call today at 866-7500-IRA(472). We will be happy to answer your questions about real estate IRA investing or any other form of self-directed IRA or retirement account investing. We look forward to speaking with you.