Arizona is a popular destination for home buyers from across the country, and its attractive real estate market is only one of the reasons for this trend. One of the more understated aspects that real estate investors and homeowners should consider is the tax structure, particularly property taxes.
How Property Taxes are Levied in Arizona: In Arizona, property taxes are levied at the county level, based on the assessed value of the property. The process involves two main steps:
- Assessment: A county assessor determines the full cash value (FCV) and the limited property value (LPV) of a property. The LPV is typically the value used to compute the property tax, and it tends to be lower than the FCV.
- Rate Application: Once the LPV is determined, various tax rates, including those for the county, city, school district, and special districts, are applied to calculate the final property tax amount.
Taxes on a Million Dollar Home: Given that Arizona generally has lower property tax rates than many states, a million-dollar home does not translate directly into exceptionally high property taxes. However, the precise tax amount varies depending on the specific location and the various district tax rates. On average, Arizona’s property tax rate hovers around 0.51% – 0.62%. So, for a home valued at $1 million, a homeowner might expect to pay approximately $6,200 annually. But remember, this is a rough estimate, and actual rates can vary.
Variation Across Counties: Indeed, property tax rates can change from one county to another. Maricopa County, home to Phoenix, might have different rates than Pima County, which houses Tucson. Hence, it’s always recommended that prospective homeowners consult with local county assessors or a knowledgeable real estate agent to get precise figures.
California vs. Arizona Real Estate Market: For buyers moving from California, the Arizona real estate and tax environment can be quite different:
- Property Taxes: California property taxes are based on Proposition 13, where properties are assessed at their purchase price, with a maximum annual increase of 2%. In contrast, Arizona property taxes can be more variable and are based on current market values, but tend to be lower on average.
- Overall Tax Burden: While Arizona might offer a reprieve in property tax rates, other taxes, like income tax, might be higher than some Californians are used to. Conversely, California has a notably higher state income tax rate, especially for high earners.
- Home Prices: Historically, home prices in Arizona have been more affordable than many parts of California, especially when comparing major cities like Phoenix to Los Angeles or San Francisco. However, prices have been rising in both states, so it’s essential to compare current figures.
- Market Dynamics: Arizona’s real estate market may be less competitive than some of California’s hotspots, but this is rapidly changing as more people migrate to the state. It’s a good idea to have an understanding of local market dynamics before making a purchase.
In conclusion, while buying a home in Arizona might seem straightforward, it’s crucial to factor in the tax implications and understand how they compare to one’s current situation, especially for those coming from different states like California. As always, working with a trusted real estate and tax professional can help simplify the process.
Please speak to an accounting professional with any of your tax questions.