What Is The Cost Of Living In Tennessee Vs. Illinois?

Cost of living is a major factor that people use to determine whether they want to live in one location versus another. When it comes to Tennessee vs. Illinois, both states have much to offer potential residents. On the one hand, Tennessee is one of the fastest growing states in the country, and those who choose to settle there are attracted to its rich beauty, charm, energetic atmosphere, and culture.

Meanwhile, on the other hand, Illinois offers a strong economy, all four seasons, job opportunities galore, and some of the best food in the U.S. But, how do these two states stack up in terms of cost of living?

The cost of living index in Tennessee is just 87.6, meaning it is about 12% more affordable to live in Tennessee than the national average (100). Illinois, on the other hand, has a cost of living index of 93.4, so it is more expensive than Tennessee but still less than the national average. The median price of a home in Tennessee is $231,600, which is about 26% lower than the national average of $291,700. Meanwhile, the median home price in Illinois is $234,000 – under the national average and only 1% more expensive than Tennessee.

Aside from median housing prices, let’s take a deeper look at how the cost of living compares in Tennessee vs. Illinois.

When you evaluate the fact that the median home price in the state of Tennessee is $231,600, it is slightly more affordable to purchase a home here than in Illinois. Although both states have median home prices underneath the national average, with Illinois’ median home price of $234,000 you’d only spend about 1% more on a home in Illinois compared to Tennessee.

The housing market in Tennessee is currently red hot, as homes are selling fast and, in most cases, for more than the asking price. Like much of the rest of the country, homebuyers in Tennessee are outpacing the available homes. This was caused by the pandemic and a massive influx of people to the state. As a result, there are simply too many buyers and not enough homes. It is a classic case of supply and demand imbalance.

Median home values in Nashville alone increased by 16% in the last year, but home prices are rising all throughout Tennessee. In fact, it is predicted that homes may continue to increase gradually into 2022. Local housing markets have accelerated because of the strong demand among buyers, but the amount of homes on the market took a drastic decline during 2020 and 2021.

A very similar situation is taking place in Illinois. During 2020, demand for housing was high statewide and while home sales boomed, inventory fell. Annual closed sales were up 9.6% last year and median sale prices increased by 7.7%. Whereas, the inventory of homes on the market in Illinois dropped by a staggering 38.8% compared to 2019. In 2021, the Illinois housing market remains hot and the median prices are forecasted to continue growing. While it may be a good time to sell a home in Illinois or Tennessee, it is more competitive and more expensive than ideal for buyers.

When it comes to median home prices, Tennessee and Illinois are pretty on par with each other and both states are below the national average. Homes cost only about 1% more in Illinois than Tennessee. However, prices can vary considerably based on where you live in either state. For example, the majority of Tennessee has median home prices under the national average, but Nashville’s median home price is above the national average at $341,700.

The same is the case for Illinois, as most cities in the state have median home prices that are below the national average but places like Evanston are significantly above.

There are twenty-one states in the country with average monthly rental rates under $1,000. With a statewide average rent of just $869 per month, Tennessee is considered an affordable state for renters. Generally speaking, states that have the lowest rental prices also have some of the lowest overall costs of living, and this holds true for Tennessee

With that said, the following table shows a more comprehensive look at the average monthly rent in some of Tennessee’s major cities:

Tennessee does not have a state income tax on salaries, wages, bonuses, or any other form of work income. However, the state did previously collect the “Hall Income Tax,” which was named after the Tennessee state senator who supported the legislation in 1929. It only applied to earnings from investment and interest dividends and for 2020 it was a 1% tax. Though, as of tax year 2021, the Hall Income Tax is gone and moving forward, Tennessee will no longer have a state income tax.

Illinois, on the other hand, has a flat income tax rate. This means that regardless of your income level you pay the state’s flat rate of 4.95%. Though, the drawback to this system is that low earners in Illinois pay more than many other states that have a progressive income tax.

Tennessee’s statewide base sales tax is 7%, which alone is tied for the second-highest rate in the nation. Though, cities and counties across the state also collect additional sales taxes ranging from 1.50% to as much as 2.75%. This means that the highest sales tax that you could pay in Tennessee is 9.75%, which happens to be the total sales tax rate in Nashville.

Although the state income tax in Illinois may be simple, the sales tax takes the opposite approach. The state has three rate structures depending on what you are purchasing: vehicles, food and drugs, and general merchandise. Groceries, medicine, and drugs are subject to a statewide sales tax rate of 1% of the purchase price, with extra local taxes of up to 1.25%. This means you could pay as much as 2.25% on these goods.

Vehicles in Illinois have their own tax rate, ranging from 6.25% to over 8.50%. The state’s general merchandise sales tax applies to any other product purchased for use in Illinois. The base tax rate is 6.25%, but most areas charge additional local taxes from 1% to 4.75%. With that said, the highest combined sales tax you could pay in Illinois is 11%.

One of the major benefits of living in Tennessee is the fact that homeowners pay some of the lowest property taxes in the nation. The median statewide property tax paid is $1,220, which translates to an average effective property tax rate of just 0.64%. Although this is the 15th-lowest effective rate in the country, rates vary based on where you live in Tennessee. For example, Shelby County has a high rate of 1.42%, while Pickett County has the lowest at under 0.37%.

Dissimilarly, Illinois’s average effective property tax rate of 2.16% is the second-highest in the country. This means that Illinois homeowners pay an average of 2.16% of their home’s value in property taxes annually. The state has nearly 8,500 different authorities with the power to collect taxes, which is more than any other state in the U.S.

Whether you choose to live in Tennessee or Illinois, it’s important that you also consider transportation costs. Expenses such as new vehicle purchase prices, gas prices, monthly transit passes, bus fares, and other public transportation costs contribute to a state’s overall cost of living.

With Tennessee’s transportation cost index of 90.2 and Illinois’ transportation cost index of 106.2, these expenses tend to be more affordable in Tennessee overall.