The housing market in Alabama provides homeowners with a good mix of old and new. From plantation homes in the southern-most parts of the state to fairly new builds, chances are, you may find the state a very affordable place to live. The average home value in Alabama, according to Zillow, is $126,600 — significantly less than the national average of $216,700. But homeowners may also find the state’s low property taxes very alluring as well. Alabama has historically assessed one of the lowest average property tax rates in the country. They make up this lost revenue with other income streams, but the low property tax rates still have an impact on the state's education system.

Average Property Tax in Alabama

Taxes in Alabama are calculated on a property’s assessed value. That value depends on how the property is used. Tax rates in the state are represented by mills, or $1 for every $1000 of assessed value. Owner-occupied properties are assessed at 10% of the market or appraised value. So the assessment for a home with a market value of $100,000 would be $10,000. If the property has a tax rate of 30 mills, the annual tax payment on that property would be $300.

Alabama’s most current effective property tax rate is 0.43%. This is the second-lowest property tax rate in the United States, with Hawaii claiming the lowest rate at 0.27%. As of 2018, the average Alabama homeowner paid about $550 per year in property taxes. According to Tax Foundation, the state's average property tax assessment is 0.40% of the property’s value, which is the second-lowest ratio in the nation. Alabama’s average property tax per capita was the lowest in the United States, according to the foundation's current data.

Counties in Alabama With Highest and Lowest Property Taxes

Jefferson County has the highest effective property tax rate in Alabama, according to SmartAsset. As of 2018, the average property tax rate was 0.65%. Residents in Jefferson County, where the median value of a home was $145,700, paid an average of $946 in taxes annually. But the county with the highest tax payment at $975 was St. Clair, where the effective tax rate was 0.50%. The median home value in that county was $195,400. 

By contrast, Bibb County had the lowest average effective rate at only 0.25%. However, the lowest median annual property tax payment came from Choctaw County, where the average effective property tax rate was 0.31%. Additionally, with a median home value of only $64,600, the county's median annual property tax payment was $200.

How Alabama Property Taxes Compare to Neighboring States

Alabama’s neighboring states to the north and west have relatively similar property tax levies. As of 2018, Tennessee implemented a property tax assessment of 0.74%, which was the 11th-lowest rate in the nation. Mississippi had the 19th-lowest average effective property tax rate at 0.78%. However, Alabama’s neighbors with a coastline tend to have higher property tax rates. Georgia’s effective rate was 0.93%, while Florida had an effective rate of 1.02%. Therefore, while Alabama residents enjoy lower property tax levies than nearby states, the general southeast region of the United States does not average high property tax rates relative to the rest of the nation.

The Reason Why Property Taxes Are Low in Alabama

Alabama is able to assess such a low average property tax rate because of its high sales tax rate. The current, average rate of 8.91%, after local surcharges, was the fifth-highest in the country. Louisiana and Tennessee were ranked as the top two in the United States. In addition to the high rate, Alabama is unlike most states in that it applies the full sales tax rate to groceries and over-the-counter medicine. 

Alabama spends much less on its public education system than any other state. Much of the state's property tax revenue therefore, goes elsewhere. And it shows. WalletHub ranked its school system 44th in the country. As of 2018, it spent the tenth-lowest amount of money on its education system, and the impact of this is evident in test scores and student well-being. 

The Bottom Line

Low home values and one of the lowest property tax rates in the country make Alabama one of the most affordable places to live. The state also boasts one of the lowest tax burdens in the country. But there are consequences to being taxed at such low levels: Alabama's property taxes don't fund programs like its public school systems nearly as much as other states do. 

Arkansas Property Tax Guide

Related Articles
  1. Taxes

    The 7 Best States For Property Taxes, and Why

    Understand why some states have high property taxes while others have low property taxes. Learn about the states with the lowest property taxes.
  2. Taxes

    10 Best States for Property Taxes in 2016

    Whether you are thinking of moving or just curious to see whether your state is in the top 10, these rankings are eye-opening.
  3. Taxes

    Sell Your Rental Property for a Profit

    Learn how to sell your rental property for a profit. Find out how to master the selling process.
  4. Taxes

    How Does a Tax-Free Exchange Work?

    In regards to the sale of property, particularly in real estate, a 1031 exchange is increasingly being recognized for its tax benefits to investors of all levels.
  5. Retirement

    The Least Expensive States to Retire In

    When it's time to retire, it's worth exploring the least expensive states.
  6. Taxes

    5 State Tax Issues For When You Leave the Military

    When you're budgeting for post-military life, certain state tax issues need to be considered.
  7. Taxes

    How to Reduce Your High Property Taxes

    Think your property taxes are too high? Here's some advice on how to get your home reassessed, using New Jersey property taxes as an example.
  8. Investing

    Investing in Rental Property: What to Consider

    Investing in rental property has some unique issues which need to be considered.
  9. Financial Advisor

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
Trading Center