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Net impact of living in no-state-tax state ?
Old 01-06-2013, 10:27 AM   #1
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Net impact of living in no-state-tax state ?

If your state tax is 6% and your income is $50,000, then you pay $3,000 in state tax.

If one moves to a no-state-tax state, obviously no state tax - BUT your federal tax is higher because you cannot deduct state income tax paid from your federal return (because you paid none...) - right ?

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%

Correct ? So the savings in above example would be $2,400 not $3,000.

Obviously a lot of other factors about deciding your state residency - cost of living, real estate taxes, etc.
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Old 01-06-2013, 10:32 AM   #2
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Originally Posted by Delawaredave5 View Post
If one moves to a no-state-tax state, obviously no state tax - BUT your federal tax is higher because you cannot deduct state income tax paid from your federal return (because you paid none...) - right ?
I don't know. Do you have to itemize to claim your state income tax as a deduction? If so, the standard deduction still gives us no-income-tax state residents a break.

And anyone can deduct property taxes if they itemize.

For states with no income tax one can itemize large sales tax expenses as a tax deduction instead. If one were careful with record keeping, one can take advantage of this option.
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Old 01-06-2013, 10:46 AM   #3
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Interesting question and you are right there are many variables. In order to get the state income tax deduction on the federal return you have to itemize. If your itemized deduction is less than the standard deduction, one would think it would make sense to use the standard deduction, right, but not necessarily. If your itemized deduction is close to the standard deduction in many cases it makes more sense to force the itemized deduction on the federal return so you can use it on the state return, as opposed to using the state's standard deduction.
In essence you may decrease or your state income tax more than enough to offset the difference on the federal return.
Hope that isn't too confusing.
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Old 01-06-2013, 10:54 AM   #4
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Income tax is only one of the considerations. There is no income outside of return on investment after you retired, but you continue to pay a higher property tax FOR LIFE if you live in a high property tax state like Texas, where property tax can be close to 3%. And while a $300000 a year places people in the high salary range, it is not extraordinary high for assessment on your property.

(I suppose from purely tax perspective, living in TX is still better than living in NJ or CT, where state income tax and property tax can both be high)
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Old 01-06-2013, 10:59 AM   #5
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I would suspect one of the nets that should be considered is what other state taxes are higher? No income tax is great, but maybe they make it up on property taxes, gasoline taxes, sales taxes, or whatever else they can. A lack of spending may also be noticeable.
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Old 01-06-2013, 11:00 AM   #6
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And some of the no income tax states have higher sales taxes, so you have to do the math since you didn't mention a particular state. I notice how much higher TX (state & local) sales taxes are when I visit family, sales taxes are lower in my state though we have income taxes and personal property taxes. My parents in TX think our property taxes are a bargain too. You really have to look at the overall picture (including property taxes too) to compare locations, it's not readily apparent (by design).

As you probably know there are several online sources, here's just one http://www.retirementliving.com/taxes-by-state
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Old 01-06-2013, 11:46 AM   #7
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I'm shocked by how much my dad pays in real estate taxes in his state compared to mine. Now my state's income tax is high. So, it stinks for me right now while w*rking, but when we ER, it will be a much better state to live in that some.

I mean, some of these RE taxes are crazy!
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Old 01-06-2013, 11:56 AM   #8
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Old 01-06-2013, 12:00 PM   #9
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Income tax is only one of the considerations. There is no income outside of return on investment after you retired, but you continue to pay a higher property tax FOR LIFE if you live in a high property tax state like Texas, where property tax can be close to 3%. And while a $300000 a year places people in the high salary range, it is not extraordinary high for assessment on your property.

(I suppose from purely tax perspective, living in TX is still better than living in NJ or CT, where state income tax and property tax can both be high)
I always wonder why people are so convinced that the TX property taxes are so high. Property in general is cheap in Texas compared to east and west coast states, especially if you live outside an urban area. You can also choose to own a modest property, even if you receive a large income.

At the risk of calling the attention of the Texas Horrors marketing committee, does a $3,400 annual property tax really seem that much out of proportion, considering 0% state income tax?

Personally, I'll take the property taxes instead. I often pay quite a bit in Federal income taxes.
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Old 01-06-2013, 12:07 PM   #10
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At the risk of calling the attention of the Texas Horrors marketing committee, does a $3,400 annual property tax really seem that much out of proportion, considering 0% state income tax?
Of course it depends on the value of your property (none of my business), but it seems reasonable to me. We paid $1900 in property tax in 2012, but our state income tax is 3.4%. Our state & local sales tax is lower than yours too if Dallas & San Antonio are representative of where you are...
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Old 01-06-2013, 12:10 PM   #11
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I always wonder why people are so convinced that the TX property tax Property in general is cheap in Texas compared to east and west coast states, especially if you live outside an urban area. You can also choose to own a modest property, even if you receive a large income.

At the risk of calling the attention of the Texas Horrors marketing committee, does a $3,400 annual property tax really seem that much out of proportion, considering 0% state income tax?

Personally, I'll take the property taxes instead.
When I was looking at the possibility of relocating to Texas, none of the listings in Houston area the agent sent to me to look at have anywhere as low an annual property tax as you quoted.
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Old 01-06-2013, 12:10 PM   #12
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Of course it depends on the value of your property (none of my business), but it seems reasonable to me. We paid $1900 in property tax in 2012, but our state income tax is 3.4%. Our state & local sales tax is lower than yours too if Dallas & San Antonio are representative of where you are...
No - we should be cheaper than Dallas and San Antonio. The larger urban areas are tend to have higher property values.

Now that you mention it, my property in Austin was appraised about 15% lower (way back when), but I did pay slightly higher property taxes. Looks like about $3,900 for 2004.

Oops sorry - sales tax wise we are the same as any other municipal area including the big cities.
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Old 01-06-2013, 12:12 PM   #13
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When I was looking at the possibility of relocating to Texas, none of the listings in Houston area the agent sent to me to look at have anywhere as low an annual property tax you quoted.
Well, that's because you wanted to live in Houston.

Our property value is probably higher than average for our county and nearby smaller cities as we live in a relatively affluent retirement community, but it's probably quite a bit less than in the large cities.

You get a huge break in property prices in TX if you move outside of large city suburbs. You can still live close enough to take advantage of big city offerings, but you get peace and quiet, more property for your money, probably slightly lower tax rates, much less traffic and congestion, etc.
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Old 01-06-2013, 12:15 PM   #14
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In my state, the top state income tax rate is 6.7%. My property tax is currently 2.57%. It's worth it to live here.
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Old 01-06-2013, 12:33 PM   #15
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You've probably seen them all before, and there are other significant excise taxes (cigarettes, liquor, wine & beer). If there's one all inclusive state chart, I didn't find it...
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Old 01-06-2013, 12:34 PM   #16
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In my state, the top state income tax rate is 6.7%. My property tax is currently 2.57%. It's worth it to live here.
It looks like after homestead exemption, yadda, yadda our property tax rate is currently 2.32%
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Old 01-06-2013, 12:39 PM   #17
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You've probably seen them all before, and there are other significant excise taxes (cigarettes, liquor, wine & beer). If there's one all inclusive state chart, I didn't find it...
Thanks, Midpack, those are nice charts. I don't think there is any point in trying to combine them, because one can choose to use more or less fuel, choose to live in an expensive property or cheap one, choose to spend a lot on consumption or not, etc. And with the sales tax, in many states, like TX, not everything has a sales tax - a lot of things are exempt.
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Old 01-06-2013, 02:13 PM   #18
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That; and it's more important to choose your living place based on what you really like, versus how much you can "save" by living there.

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Old 01-06-2013, 02:28 PM   #19
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The moral of the story: There is no free lunch (for most people).
The closest I've seen is a friend who lives in Vancouver, WA (just over the border from Portland, OR). He lives in a state (Washington) with no income tax, and does most of his shopping in Oregon which has no sales tax. Not a bad arrangement!
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Old 01-06-2013, 02:39 PM   #20
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Well, that's because you wanted to live in Houston.

Our property value is probably higher than average for our county and nearby smaller cities as we live in a relatively affluent retirement community, but it's probably quite a bit less than in the large cities.

You get a huge break in property prices in TX if you move outside of large city suburbs. You can still live close enough to take advantage of big city offerings, but you get peace and quiet, more property for your money, probably slightly lower tax rates, much less traffic and congestion, etc.
One of the big drivers of property tax in Texas is school tax and if you come from a wealthy town, you end up subsidizing the schools of the poorer towns ( a la Robin Hood). My property tax is > $12K and I do not particularly like seeing my tax $s not benefiting our local schools.

Maybe some of the remote areas should be handling more of that burden
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