Property tax is a topic no one wants to think about, and in some states, you might not have to. If you’ve paid off your mortgage, living in a state with a very low property tax rate can save you a lot of money. In fact, your housing costs could drop to less than $100 per month, plus homeowners insurance, once you own your home free and clear.
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Property tax rates vary significantly across the United States. There’s a 1.91% difference between the highest and the lowest effective real-estate tax rates in the country, according to Rocket Mortgage.
The average effective tax rate among the five states with the lowest rates is just 0.48%, according to the Rocket Mortgage data. What that means in terms of an actual dollar figure varies by location. That’s because tax rates are based on assessed value, which isn’t always the same as market value. What’s more, some locations only tax a portion of a home’s assessed value.
According to Rocket Mortgage, here are the five states with the lowest ranking property taxes and their average annual property tax, based on median home value or list price:
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Hawaii: 0.32% | $937.29
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Alabama: 0.40% | $803.59
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Colorado: 0.55% | $2,901.65
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Wyoming: 0.56% | $1,404.42
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Louisiana: 0.56% | $1,095.89
Property taxes are usually levied by counties, not states, so your actual tax rate could be much lower or higher than the average for your state. For example, homeowners in seven counties in Alaska, Louisiana and Alabama pay less than $200 a year, according to the Tax Foundation.
Property taxes serve as the primary tool for financing local governments. That means your local government relies heavily on those taxes to fund things like schools, roads and public safety.
“In fiscal year 2020, property taxes comprised 32.2% of total state and local tax collections in the United States, more than any other source of tax revenue,” according to the Tax Foundation. In that same year, property taxes amounted to 72.2% of local tax collections.
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This article originally appeared on GOBankingRates.com: 5 Best States for People Who Have Paid Off Their Mortgages
