Net impact of living in no-state-tax state ?

[LakeTravis]

Paid $15,750 in property taxes last year on two properties totalling $590K in tax appraised value. Roughly 2.7% after homestead exemptions.

Texas will let you "defer" property taxes at age 65, but they accrue with an annual charge of 8%, making it a very expensive loan should one decide to sell the property before death.

I'd be interested in determining how much less it would be if we moved to a state that had state income tax but supposedly lower property taxes, as I would much prefer that our tax responsibility be tied to income (of which there will be much less when we retire) versus assets.

 

[JPatrick]

Regardless, even if property taxes were non-existent in Texas, I wouldn't willingly move back.

Another satisfied customer....

I keep telling yah, it's those scorpions, fire ants and snakes.

 

[jebmke]

taxes aren't even in the top 5 of my list of criteria for retirement location.

 

[ziggy29]

Everyone for whom taxes are a major consideration needs to consider their own situation because they are all different.

If you have a high income and a LBYM lifestyle, you'd be much better in Texas (high sales tax/no income tax) than in Oregon (high income tax/no sales tax). In Oregon if you had a lower income but spent it all, you'd be better off than in Texas.

Or you could live in Vancouver, Washington (no income tax) and make most big purchases across the river in Portland (no sales tax)...

 

[martyb]

I currently work in Texas, but spend weekends in Louisiana. Texas property taxes are a good bit higher than Louisiana property taxes. Neither Texas nor Louisiana will tax my retirement income. I will more than likely live in Louisiana...even though I could probably find more desireable property in east Texas, at a better initial price. The problem is that if I bought a home in Texas, even after it's paid off, I'll continue the higher taxes on the home. In Louisiana, once the home is paid for, the taxes will be much lower. Example: My former home in Bossier City, LA. Sold in late 2008 for $200k, inside the city limits. Taxes were $1100 for the year.

I had a home in Bastrop County, Texas, that I sold for $95k in 1996. Outside the city limits. Taxes on that home were $1965. Louisiana grants a $75,000 property tax exemption. Now, of course other aspects of the two states can be compared, and there are some pluses & minuses on both sides. I really like both states, but I have 2 kids residing in Shreveport, and my wife's already stated her feelings on the matter....Ya'll know how that goes....

 

[W2R]

It seems to me that a practical outlook would be to favor a state that provides the lowest cost of living for the desired lifestyle.

Perhaps it is simply human nature to resent the authoritarian extraction of taxes from one's pocketbook. For some it may be extremely emotionally rewarding to favor a no-tax state.

However, logic would tell us that taxes are just one of many expenses (and other factors) to consider when choosing a retirement location.

 

[RunningBum]

So if your Federal bracket is 20%, then your net state tax savings for moving from a 6% state tax state to a 0% state tax state is (100%-20%) x (6%) = 4.8%

There is no 20% federal bracket...but yes, you lose that deduction, so if you would still itemize despite losing that deduction, your formula is right, using your actual marginal tax rate rather than 20%.

 

[Shawn]

As far as Texas property taxes go, I found them to high. Our 2000 sq ft house on a 25'x130' lot ran about $6000/yr. Of course, this was inner city houston. You can be the judge if that is high, but I'm confident that if you were to compare common city sizes (apples to apples in other words), the Texas property taxes will be higher.

In California, I pay $3200/yr in property taxes for my 1200 sq ft house that is located in an average working class suburban community. If I purchased my house today at it's higher tax basis (Proposition 13), I'd pay over $5000/yr. I'd pay over $7000/yr for a 2000 sq ft house.

On top of this, my marginal income tax rate is 9.3%. This rate kicks in at only $48K for single filers, with high bracket rates up to this level so the effective rate is also high (in 2011, my effective state income tax rate was 7.6%). The full 9.3% rate is applied to capital gains and dividends. Sales tax is now 9.5% in my county. My sense is that other tax burdens are high relative to most states (e.g., motor vehicle taxes, no state HSA deduction). I'm subject to federal AMT so the ability to deduct state/local taxes on my federal return is limited.

I'm guessing that my total state/local tax burden is at least twice as high in California as it would be in Texas or other no/low income tax states (I've seen tables suggesting smaller differences but I do not understand the assumptions behind these estimates). It's not clear to me what services I receive in California for these higher taxes that I would not receive in Texas. I don't even get a free T-shirt.

Because of a DB pension, I'll continue to face high income, property, sales, and other taxes if I remain in California after I retire. While many variables come in to play when deciding where to live, cost of living is among them. And taxes are a significant part of the cost of living.

 

[Midpack]

It seems to me that a practical outlook would be to favor a state that provides the lowest cost of living for the desired lifestyle.

However, logic would tell us that taxes are just one of many expenses (and other factors) to consider when choosing a retirement location.

+1. New Hampshire appears to be a good example. The have no income taxes and no general sales taxes - which sounds like nirvana, but high property taxes and a high cost of living, based on what I've read.

 

[ejw93]

In California, I pay $3200/yr in property taxes for my 1200 sq ft house that is located in an average working class suburban community. If I purchased my house today at it's higher tax basis (Proposition 13), I'd pay over $5000/yr. I'd pay over $7000/yr for a 2000 sq ft house.

On top of this, my marginal income tax rate is 9.3%. This rate kicks in at only $48K for single filers, with high bracket rates up to this level so the effective rate is also high (in 2011, my effective state income tax rate was 7.6%). The full 9.3% rate is applied to capital gains and dividends. Sales tax is now 9.5% in my county. My sense is that other tax burdens are high relative to most states (e.g., motor vehicle taxes, no state HSA deduction). I'm subject to federal AMT so the ability to deduct state/local taxes on my federal return is limited.

I'm guessing that my total state/local tax burden is at least twice as high in California as it would be in Texas or other no/low income tax states (I've seen tables suggesting smaller differences but I do not understand the assumptions behind these estimates). It's not clear to me what services I receive in California for these higher taxes that I would not receive in Texas. I don't even get a free T-shirt.

Because of a DB pension, I'll continue to face high income, property, sales, and other taxes if I remain in California after I retire. While many variables come in to play when deciding where to live, cost of living is among them. And taxes are a significant part of the cost of living.

+1. To relish the federal tax write-off of your state income taxes (esp. in a high income-tax state like CA) is like saying, "Of the venereal diseases, I find Syphillis to be the least offensive."

 

[nun]

Paid $15,750 in property taxes last year on two properties totalling $590K in tax appraised value. Roughly 2.7% after homestead exemptions.

Wow, I live in Boston and paid $6k on my two family home last year. The appraised value is $575k and I also get $15k in rent from the ground floor apartment.

 

[bondi688]

Shawn
Someone has to pay the salaries and pensions of those city officials at Bell, CA.

 

[KM]

+1. New Hampshire appears to be a good example. The have no income taxes and no general sales taxes - which sounds like nirvana, but high property taxes and a high cost of living, based on what I've read.

You're right (I live in NH). 1900 sq ft and we paid $5400 in property tax and will pay about $500 in Interest & Dividend tax - for a grand total of $5900 in state taxes. Dont even get me starting on heating costs

A few years ago I spent some time trying to estimate our personal "total real tax burden", if we decided to move once retired (when the benefits of being in a "no income tax state" starts to lose its' charm). We will have pension income, though, so state income tax does still factor in for some states. Knowing what we pay each year on items helped estimate sales tax. And a little more research helped me determine rough property tax burden for where we might move.

I only considered states in the mid-Atlantic area that did not have an inheritance tax - but bottom line is once retired, NH was the third highest of the 8 states I looked at (MD, VA, NC, SC, TN, WV, KY, NH).

Lack of income tax has been good for us during our working years....but will probably not be so good once we retire. But family is here, so we will likely stay here.

 

[JoeWras]

In California, I pay $3200/yr in property taxes for my 1200 sq ft house that is located in an average working class suburban community. If I purchased my house today at it's higher tax basis (Proposition 13), I'd pay over $5000/yr. I'd pay over $7000/yr for a 2000 sq ft house.

I'm in high tech, but don't live in CA. Career wise, that is not optimal. Silicon Valley provides so many opportunities. And, of course, there's so much I'd want to do in CA, the Sierras and the west coast.

But I'll never live there. Actually, made that choice 20 years ago and now it is too far gone. Prop 13 raises too high a barrier of entry.

 

[clifp]

Here are some data points from the states I am familiar with.
I've purchased/sold three 2,000 square foot houses in the last dozen years. The CA and HI house are according to Zillow virtually the same value. $875K. The Las Vegas house 100K.
The Vegas house is the newest and nicest. The location of the HI house is by far the best. The CA and HI neighborhoods are comparable upper middle, while the NV neighborhood is middle class.
Property taxes CA $6,000 HI $2,600, NV $800
Sales Tax NV 8.1% CA 8.4% HI 4.65% but since Hawaii taxes is an excise tax and applies to everything including services like lawyers, plumbers, food and even rent the effective rate is much higher roughly double. Making sales tax in all three states comparable.
Nevada has no income tax. For a couple making 100K the marginal rate is 8.25% in HI and 9.3% in CA, however HI taxes lower incomes more heavily. Hawaii doesn't tax a lot of retirement income. Overall I'd estimate that retired couple with 100K in income would pay roughly $4,000 in either state in income tax.

So from a tax perspective it you'd pay an extra $9,000 to live in California, and $6,000 to live in Hawaii than a low cost state like NV. Along with a higher cost of living in both states.

Like Shawn says it isn't clear to me what services that I get/got in Hawaii or California that I don't get in Nevada. All in all, I've actually found Nevada government more responsive.

 

[marko]

Massachusetts property tax: $8500.

Need to withdraw $9000 from IRA just to pay the 5.3% income tax in order to pay the property tax. (Prop tax not deductible for state taxes.)

 

[Da Nag]

I'm in high tech, but don't live in CA. Career wise, that is not optimal. Silicon Valley provides so many opportunities. And, of course, there's so much I'd want to do in CA, the Sierras and the west coast.

Nerd here as well, and I lived there until retiring to WA recently.

Even with a 50% reduction in income, we're saving almost $15K a year between property and income taxes. Getting out was a no-brainer.

Much as I hated living there, I must admit - I'll enjoy being a tourist.

 

[Corporateburnout]

Wow, I live in Boston and paid $6k on my two family home last year. The appraised value is $575k and I also get $15k in rent from the ground floor apartment.

Our state was unfairly labeled "taxashusetts" as it has reasonable RE taxes, sales tax @6% and income tax rate of 5.3%. Damn if it wasn't for the high property values, high cost of living, high food costs, high entertainment cost, high long term care cost it would be a great place to live

 

[Corporateburnout]

Massachusetts property tax: $8500.

Need to withdraw $9000 from IRA just to pay the 5.3% income tax in order to pay the property tax. (Prop tax not deductible for state taxes.)

This is pretty high for MA. You must live in the ritzy side of town

 

[bondi688]

Our state was unfairly labeled "taxashusetts" as it has reasonable RE taxes, sales tax @6% and income tax rate of 5.3%. Damn if it wasn't for the high property values, high cost of living, high food costs, high entertainment cost, high long term care cost it would be a great place to live

You forgot to include the courteous road warriors and the confusing layout of roads built over former cowpaths.

 

[Corporateburnout]

You forgot to include the courteous road warriors.

I did. How do I forget to mention the best and most considerate drivers in the country?

 

[FIREd]

Here are some data points from the states I am familiar with.
I've purchased/sold three 2,000 square foot houses in the last dozen years. The CA and HI house are according to Zillow virtually the same value. $875K. The Las Vegas house 100K.
The Vegas house is the newest and nicest. The location of the HI house is by far the best. The CA and HI neighborhoods are comparable upper middle, while the NV neighborhood is middle class.
Property taxes CA $6,000 HI $2,600, NV $800
Sales Tax NV 8.1% CA 8.4% HI 4.65% but since Hawaii taxes is an excise tax and applies to everything including services like lawyers, plumbers, food and even rent the effective rate is much higher roughly double. Making sales tax in all three states comparable.
Nevada has no income tax. For a couple making 100K the marginal rate is 8.25% in HI and 9.3% in CA, however HI taxes lower incomes more heavily. Hawaii doesn't tax a lot of retirement income. Overall I'd estimate that retired couple with 100K in income would pay roughly $4,000 in either state in income tax.

So from a tax perspective it you'd pay an extra $9,000 to live in California, and $6,000 to live in Hawaii than a low cost state like NV. Along with a higher cost of living in both states.

Like Shawn says it isn't clear to me what services that I get/got in Hawaii or California that I don't get in Nevada. All in all, I've actually found Nevada government more responsive.

Don't forget the California State Disability Insurance, 1% deducted from all taxable wages up to ~$100K.