As real estate agents, we know that property taxes are an important consideration for our clients when choosing a home. But Redwood’s service area covers three different states, each with different property taxes and considerations for buyers. How do we help homebuyers understand the tax implications of one property versus another? Let’s start by comparing the property tax rates in Maryland, DC, and Virginia to see which one has the highest and lowest.
How Property Tax is Computed
As a general rule, to figure out the property tax on a home, take the assessed value of the property and divide it by 100. Multiply that number by the effective tax rate percentage for the area in which the home is located.
This will give you the base annual tax rate for the property before any applicable deductions (such as homestead deduction, senior citizen tax freezes, or other credits). Simple, right? https://realestateinthedistrict.com/dc-real-property-tax-rates/
Here is a quick example for a residential property in D.C. valued at $500,000.
STEP 1: Divide the assessed value by 100
$500,000/100= $5,000
STEP 2: Multiply this number by the tax rate
$5,000 x $0.85= annual tax of $4,250 (before any deductions)
Yes, it seems simple until you realize that it’s not just one set tax rate for each of the states. The national average is 1.07%, but in most states, property taxes vary from county to county and city to city. And county and state governments assess property value in several different ways. So, with different tax rates and different home valuation processes, tax amounts can vary significantly – even for comparable homes in areas that are geographically close to each other.
Washington, D.C. Has the Lowest Effective Tax Rates.
Washington, D.C. has the simplest property tax structure and the lowest tax rate out of the 3 states we are comparing. In D.C., properties are divided into different classes, and each has a set tax rate. Residential properties, including multifamily units, fall into Class 1 which has a tax rate of 0.85%. Property values are assessed every year, and taxes rise and fall based on that valuation. https://otr.cfo.dc.gov/page/real-property-tax-rates
Virginia and Maryland Are a Bit More Complicated.
Virginia and Maryland’s property taxes vary by state, county, and municipality and the average tax rates are considerably higher than in D.C. Virginia comes in with the second-lowest effective tax rate at 1.08%, while Maryland has the highest at 1.25%.
The effective tax rate for each community in Maryland is a combination of state, county, and municipal tax rates, and properties are reassessed once every three years.
Virginia’s property tax rates are calculated by local governments (counties, cities, and special districts like sanitation districts). The average effective property rate in Virginia is 1.08%, but it is higher in some counties, cities/areas than others. Value is assessed on two- to six-year cycles. It is interesting to note that by Virginia state law, total taxes across a tax district cannot increase by more than 1% because of a reassessment, but taxes on an individual property can increase by any amount.
But the Property Tax Rate Doesn’t Tell the Full Story.
While D.C. has the lowest tax rate, home values are also significantly higher. The average home value in D.C. is $693,782 vs $345,592 in Virginia and $380,431 in Maryland. So even though the tax rate is lower, many homebuyers are priced out of the D.C. market.
To make the most informed decision on the best area to purchase a home, there are other taxes to take into consideration – such as state income tax rates, deductions, and additional taxes levied on groceries and vehicles. D.C. has the highest state income taxes but matches the federal standard tax deduction and has no tax on groceries or annual vehicle property taxes.
Maryland also doesn’t tax groceries or have an annual vehicle property tax. However, Maryland has a lower standard deduction and additional local income tax rates added to the state rate.
Virginia’s income tax rate is capped at a certain level, which could be more advantageous for high earners, but it also charges an annual vehicle property tax and taxes groceries.
| State | Residential Tax Rate | Average Property Value | How Often Reassessed? |
| District of Columbia | 0.85% | $693,782 (Source) | Annually |
| Maryland | Varies by location 1.250%Average rate |
$380,431(Source) | Every 3 years |
| Virginia | Varies by location 1.08% Average county tax rate |
$345,592 | Every 2-6 years |
The specific tax rates of the areas that your clients are considering will make a huge difference in their purchasing power. Knowing as much as you can about your area and surrounding areas’ property tax rates and educating your buyers will demonstrate your expertise and is another way to offer value-add services.
