Knoxville Property Tax: How Does it Compare to Other Major Cities?

Young families just entering the housing market, families with children wishing to improve quality of life, older couples nearing retirement age and investors searching for good rental property need look no further than Knoxville TN. The Knoxville Home Price Index has increased for the last 9 consecutive quarters (only three cities in the US have longer sustained growth), and shows no indication of stopping. Growth is slow, but steady. Several factors contribute to Knoxville’s attraction as a place to live and work, among them the cost of living (11 percent below the national average), the presence of a major university, the University of Tennessee, a mild climate, and the city’s proximity to the Great Smoky Mountains National Park. Knoxville is becoming favored destination. The best way to monitor the availability of housing, market shifts and changes in inventory, is to follow all the up-to-the-minute information compiled by Movoto, a national real estate company with detailed coverage of the Knoxville market.

Are Knoxville Property Taxes High or Low?

The state of Tennessee has some of the lowest property taxes in the U.S. The median annual property tax paid by homeowners in Tennessee is just $1,024, ninth lowest in the country and less than half the national average. In Knoxville, the median home value is $117,100, almost 60 percent less than the national average of $184,000. With an average property tax of over $2,800 nationwide, the median rate paid by Knoxville residents is slightly more than half that amount, $1477.

Knoxville residents pay both city and county taxes. The rate for Knox County is $2.32 for each $100 of assessed value, and the rate for the city itself is $2.7257, also based on $100 of assessed value. Note that the assessed value in both cases equals 25 percent of the appraised value.

As an example, a home appraised at $100,000 has an assessed value of $25,000. The total property tax would be $25,000 divided by 100, as the tax is levied on each $100 of assessed value. The county taxes would be 250 X $2.32, or $580, and the city amount would be 250 X $2.7257, or $681.43. The total property tax for the homeowner for any tax year, then, is $1261.43, approximately $230 above the state average.

Of the five largest cities in Tennessee, Knoxville ranks third in total percentage of property taxes paid by residents, as indicated below.

It should be noted, however, that not all costs of living, number of city or county services, or property assessments are equal. For comparison purposes with the two largest cities in Tennessee, a homeowner with the same appraised home value ($100,000) in Nashville would pay slightly less than in Knoxville, at $1129, and in Memphis more than 50 percent more, at $1942. This example is for property taxes only, as other factors come into play in each city, which taken together determine the effective tax rate for each. For example, the median home value in Nashville is more than $75,000 higher than in Knoxville ($193,400 to $117,100), and the median in Memphis is $4,900 less than in Knoxville.

How do Knoxville Property Taxes Compare to Nearby Cities?

The comparison is difficult, as the tax base varies from state, county and city. In Asheville, NC, the rate is a seemingly low 1.18 percent per $100 of assessed value; however, where in Knoxville (and all of Tennessee) the assessed value is 25 percent of appraised, in North Carolina it is set at 100% of appraised value. So for Asheville, the comparable rate is 4.72, still slightly below Knoxville. In Atlanta GA, neighborhoods, zip codes and homestead exemptions make comparison even more difficult. The published rate is 4.34, but the percentage of assessed value to appraised value varies within the city proper. Huntsville AL has a rate of 5.8 percent, which may be adjusted downward slightly if the property qualifies for Homestead exemption.

A city to city comparison is difficult when they are located in different states, with variable rates and assessment methodologies. When compared in the larger sense, that of total average tax burden, Tennessee residents pay less taxes than 35 of the other 49 states, largely because of the various other taxes and tax rates.

What About Other Taxes?

In addition to their favorable comparison to other cities with respect to property taxes, Knoxville residents enjoy other tax advantages as well. Tennessee is one of only 10 states in the nation with no personal income tax, which means that Knoxville residents pay only federal income tax, property tax, and state sales tax. Other taxes levied in some states, such as the personal property tax assessed on automobiles, which can amount to thousands of dollars annually are not collected in Knoxville, or in Tennessee.

The sales tax rate in Knoxville is higher than in most part of the United States. The state sales tax rate is set at 7.00 percent; Knox County’s rate of 2.25 percent makes the total 9.250 percent, higher than the 8.49 percent national average. The city of Knoxville has no separate rate.  Although this is high when compared to the national average, the overall cost of living in Knoxville is 11 percent lower than the national average, which effectively lowers the total dollars actually spent annually for sales tax. The state, and some local municipalities also sponsor “tax-free” events throughout the year, such as back to school weekend in late summer, where practically any item from personal computers to pens and pencils can be purchased with no taxes added.

Other taxes which may be used for comparison purposes include the state taxes levied on fuel. Tennessee taxes gasoline at 21.4 cents per gallon, and diesel fuel at 18.4 cents. This is well below the national average of 29.6 cents for gasoline and 29.38 cents for diesel. These numbers are the average taxes levied by states, which do not include the United States federal excise tax on gasoline of 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. Only 14 states have lower taxes on fuel than Tennessee.

Affordability

b fundamentals and a trending economy aside, Knoxville real estate is more affordable than most markets across the country. Affordability is historically b for the area and the long range outlook continues to be favorable. In addition to the relatively low effective tax burden, Knoxville home owners spend about 8.4 percent of their income on monthly mortgage payments. Compared to the 15.1 percent national average, Knoxville affordability is very attractive for younger Americans and first-time buyers. Recent appreciation rates for Knoxville and the rest of the country are fairly comparable, at 4.2 percent and 5.7 percent respectively. Despite slower appreciation rates in Knoxville, prices continue to grow relative to last year, moving the real estate market away from a period of post-recession price weakness. As a result, Knoxville real estate investing should see a boost in activity.

In addition to enjoying a mild climate and relatively low cost of living, Knoxville has one of the lowest effective tax rates in the nation, a major factor in its continued growth.

2 Point Highlight

Young families just entering the housing market, families with children wishing to improve quality of life, older couples nearing retirement age and investors searching for good rental property need look no further than Knoxville TN.

In addition to enjoying a mild climate and relatively low cost of living, Knoxville has one of the lowest effective tax rates in the nation, a major factor in its continued growth.