You’ve run the numbers on mortgage payments, maybe even factored in homeowner’s insurance. But if you’re buying in New Jersey, Illinois, Texas, or Connecticut, there’s a line item that will quietly bleed your wealth for decades: property taxes. And most buyers catastrophically underestimate what that means over a lifetime of ownership.
The median property tax bill in New Jersey is over $9,000 annually. In Texas, it’s common to pay $8,000 to $12,000 on a modest suburban home. Compare that to Alabama, where the median is under $700. That’s not a rounding error—it’s the difference between retiring comfortably and working an extra decade.
Yet people keep buying in high-tax states, convinced that appreciation will compensate, or that the schools justify the cost, or that they’ll “figure it out.” Some of them are right. Many are making a decision they’ll regret for thirty years.
The number nobody calculates correctly
When buyers evaluate affordability, they focus on the mortgage payment. Understandable—it’s the biggest single number. But property taxes compound in ways that mortgages don’t.
Your mortgage balance goes down over time. Your property tax bill almost certainly goes up.
In most high-tax states, assessments increase regularly, sometimes annually. Texas has a 10% cap on homestead assessment increases, which sounds protective until you realize that’s 10% per year—enough to double your tax bill in about seven years if your home appreciates steadily. New Jersey has no such cap on most properties. Illinois reassesses every few years and has been known to dramatically increase valuations in a single cycle.
Consider a $400,000 home in a state with a 2.5% effective tax rate. That’s $10,000 in year one. If assessments increase just 3% annually—modest by historical standards—you’re paying over $13,400 by year ten and over $18,000 by year twenty. Over thirty years, assuming the same growth rate, you’ll have paid roughly $475,000 in property taxes alone. That’s more than the original purchase price of the house.
Now run the same calculation for a $400,000 home in a 0.5% tax state. Year one: $2,000. Year thirty cumulative total: roughly $95,000. The difference is $380,000—enough to fund a comfortable retirement, pay for multiple college educations, or buy a second home outright.
This isn’t hypothetical math. It’s the actual cost difference between buying the same-priced home in different states.
The hidden anchor effect
High property taxes don’t just drain your bank account monthly. They anchor you to a home you might otherwise leave.
Here’s what happens: You buy a house, live there ten years, and your property taxes have climbed from $9,000 to $14,000 annually. You consider moving to a nicer home in the same area. But that nicer home has a current assessment, not the grandfathered one you’ve been building. Your tax bill could jump to $20,000 or more overnight.
So you stay put. You renovate instead of relocating. You add a bedroom rather than buying a bigger house. You make do.
This isn’t necessarily irrational—it’s responding to real incentives. But it limits your flexibility in ways you didn’t anticipate when you bought. Maybe you need to move for a job. Maybe your family situation changes. Maybe you just want a different neighborhood. In a high-tax state, every move resets your tax basis, making each transition more expensive than it would be elsewhere.
California’s Proposition 13 creates an extreme version of this problem, but at least Californians know about it. In New Jersey or Illinois, the anchor effect creeps up on people. They don’t realize they’re trapped until they try to leave.
When high taxes actually make sense
Not everyone buying in a high-tax state is making a mistake. Some are making a calculated trade-off that works for their situation.
If you’re a high earner who can deduct property taxes (up to the $10,000 SALT cap), you’re getting a federal subsidy on part of the cost. The math changes—not enough to eliminate the premium, but enough to narrow the gap. If you’re in the 32% marginal bracket and deducting the full $10,000, you’re effectively getting $3,200 back, reducing your after-tax property tax burden.
If you’re buying in a state with no income tax—like Texas—the high property taxes are partially offset by income tax savings. Texas has no state income tax. For a household earning $200,000, that could mean $10,000 or more in annual savings compared to California or New York. Does that fully offset a $12,000 property tax bill? Maybe, maybe not. It depends on what you’d pay in a comparable low-property-tax, low-income-tax state like Florida or Tennessee.
If you’re prioritizing school quality and your alternatives are expensive private schools, the property tax premium might be cheaper than tuition. A family paying $15,000 annually in property taxes to access a top public school district might be saving $30,000 to $50,000 compared to private school in a lower-tax area. That’s a real trade-off worth making.
And if you’re planning to stay in the home for life, never moving, the anchor effect becomes irrelevant. You’re not trapped if you never wanted to leave.
When it’s a costly mistake
The mistake happens when people buy in a high-tax state without running the lifetime numbers, or when they assume appreciation will bail them out.
Appreciation doesn’t solve the property tax problem. It makes it worse.
If your home doubles in value, your property tax assessment will eventually catch up. You’ll be paying taxes on a $800,000 valuation instead of $400,000. Yes, you have more equity—but equity doesn’t pay monthly bills. You can’t spend appreciation unless you sell or borrow against it. Meanwhile, the tax bill is due every year regardless.
This creates a perverse situation where the “best” outcome for your home value is also the outcome that increases your ongoing costs the most. In a low-tax state, appreciation is pure upside. In a high-tax state, it’s a mixed blessing.
The mistake also happens when people underestimate how long they’ll stay. “We’ll be here five years, then move somewhere cheaper.” But life happens. Kids start school and you don’t want to disrupt them. Your spouse gets promoted. The market dips and you’re underwater for a few years. Five years becomes fifteen. That property tax burden you thought was temporary becomes your permanent reality.
The opportunity cost nobody talks about
Every dollar paid in property taxes is a dollar not invested elsewhere. This sounds obvious, but the compounding implications are staggering.
Take that $8,000 annual property tax premium (the difference between a high-tax and low-tax state on a similar home). If you invested that difference in a broad market index fund averaging 7% real returns, you’d have roughly $755,000 after thirty years. That’s not fantasy—that’s the actual opportunity cost of choosing the high-tax location, assuming you could have bought a comparable home for the same price elsewhere.
Even half that premium—$4,000 annually—compounds to over $375,000 in the same period. That’s the kind of money that could let you retire earlier, fund a child’s education without loans, or provide a cushion against the unexpected.
The decision to buy in a high property tax state is, mathematically, a decision to forgo that future wealth. That might be the right choice—location matters, jobs matter, family matters—but it should be a conscious choice, not an oversight.
The relocation calculation
If you’re currently renting and considering where to buy, this is the moment to run the numbers honestly.
Compare total housing costs, not just purchase prices. A $350,000 home in Texas with $10,000 annual property taxes and no state income tax versus a $400,000 home in Tennessee with $2,500 annual property taxes and no state income tax. The Tennessee home is more expensive upfront but cheaper over time. By year eight, you’ve broken even on the price difference. By year thirty, you’re hundreds of thousands ahead.
Factor in career implications. Some industries cluster in high-tax states. If you’re in finance, New York and Connecticut might be unavoidable. If you’re in tech, California or Texas. The income premium from being in the right location might dwarf property tax considerations. Or it might not—remote work has changed this calculation for many professionals.
Consider what happens if you need to sell. High property taxes can suppress resale values because they increase carrying costs for buyers. A $500,000 home with $15,000 annual taxes is harder to sell than a $500,000 home with $5,000 annual taxes, all else being equal. You might find that your home is harder to sell than you expected when the time comes to move.
The rule of thumb
If you’re trying to decide whether buying in a high property tax state makes sense for your situation, here’s a simple framework:
Calculate your expected annual property tax bill. Multiply by thirty. If that number doesn’t make you uncomfortable, you can probably afford it. If it makes you physically ill, you probably can’t—or at least, you should seriously consider alternatives.
Then ask: What would I do with the difference if I bought in a lower-tax state? If the answer is “nothing, I’d just spend it,” then the forced savings of lower taxes won’t help you anyway. If the answer is “invest it, pay down other debt, or build security,” then you’re giving up something real.
Finally, ask: What’s keeping me in this state? If it’s family, career, or genuine preference, those are valid reasons. If it’s inertia, fear of change, or the assumption that you can’t afford to move, those deserve more scrutiny. The cost of waiting can go both ways—sometimes the expensive choice is staying put.
The deeper question
Property taxes are just one cost. They’re not even the biggest cost of homeownership in most cases. But they’re unique in how they persist, how they grow, and how they’re invisible to most buyers until the bills start arriving.
The real question isn’t whether to buy in a high property tax state. It’s whether you’ve honestly accounted for what that choice costs over a lifetime—and whether the benefits you’re getting in return are worth it.
For some people, the answer is unambiguously yes. Great schools, proximity to family, career opportunities that don’t exist elsewhere, a community you love. Those things have value that doesn’t show up in spreadsheets.
For others, the answer should be no. They’re buying in a high-tax state because it’s familiar, or because they haven’t seriously considered alternatives, or because they’re focused on the monthly mortgage payment without seeing the full picture.
The danger isn’t the high taxes themselves. It’s making a thirty-year decision based on a five-minute analysis.
You’ve calculated whether you can afford the mortgage. But have you calculated whether you can afford to pay more in property taxes over your lifetime than you paid for the house itself? And if that sounds like becoming house poor, you might be right.