Many people know that the cost of living is higher in certain parts of the United States, and lower in others. However, you may be surprised to learn just how much of a financial difference your location can make. To illustrate this, here's how much home prices, property taxes, and income taxes can vary depending on where you live.
The price you pay for housing can vary significantly from one locale to another. Here's a look at some median pricing data for different kinds of housing options:
The median is the number that rests exactly in the middle of the population. In other words, half of homes sell for more, while half sell for less. Here's a look at some regional data:
As you can see, the median sales price this year for an existing home is $228,700 at last count. However, the median home price in the Midwest is more than 20% below that. To the other extreme, a home in the western U.S. -- heavily influenced by the huge population and expensive housing in California – is more than 40% higher than that.
Homes in my own neighborhood, a couple hours north of Los Angeles, sell for more than $400,000. And we're talking about houses less than 1,200 square feet in size. But if you go back to my hometown in northwest Georgia, you can buy more than twice the home for less than half the price.
That's why they say there are three rules in real estate: location, location, location.
If you've never moved from a high-tax state to a low-tax state or vice-versa, then you may not realize how different property taxes can be.
However, the variation is dramatic. In the United States, average property taxes on real estate vary from a low of 0.18% of a home's value in Louisiana to a high of 1.89% in New Jersey. On a $200,000 home, this can make the difference between annual property tax bills of $360 and $3,780.
Also bear in mind that real estate taxes aren't the whole story. In 27 states, you'll also have to pay annual property tax on your cars. The annual average car tax is $423, but just like taxes on real estate, this amount is typically based on the value of your vehicle and the particular state's tax rate.
Some states have low overall property taxes, such as Delaware, with an average real estate tax of $1,001 per year and no property tax on vehicles. On the other hand, Rhode Island's average real estate and vehicle property taxes are $2,779 and $1,133, respectively. In other words, owning an average house and car would cost you $3,911 more per year in Rhode Island than it would in Delaware. So, when it comes to taxes, location can make a huge difference.
If you think property tax differences between states are big, then just take a look at the disparities among states when it comes to taxing your income. Seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) have no income taxes at any level, and two more (New Hampshire and Tennessee) don't tax wages and instead only impose income taxes on investment income. At the other end of the spectrum, high-tax jurisdictions like California can charge tax rates of up to 13.3% on high-income taxpayers.
Of course, one thing to consider is that many states with low income taxes make up for the lack of revenue by having higher-than-normal taxes in other areas, such as sales tax and property tax. That's what makes it important to take a look at your own personal financial situation and weigh the taxes you'd pay in each state. If your income is high but you're relatively property-poor, then a low-income-tax state makes more sense. If you are retired and prefer a nice, spacious house, then it won't hurt you to live in a high-income-tax state if it means lower property taxes. Nevertheless, for most people in the middle of their careers, a high income tax can be a deal breaker when it comes to picking a state in which to live.