Retiring in Texas?

[Rustic23]

I was talking to my next door neighbor about his retirement. He retired in 2000 at age 50. Aside from the market risk he incurred, the thing he did not plan on was the increase in property tax. He picked a spot on a lake that had been developed in the late 70’s and hit hard by the down real estate market of the 80’s and 90’s. In 2000, it was possible to get an acre on the lake, with 200 front feet on the lake, for less than $15,000, and a total home cost of less than $120,000 for a 2,800 sq.ft. home.

What he did not count on, was the Texas law that allows jurisdictions to increase property taxes as much as 10% per year as the market value of his home increased. For the first few years of his retirement everything was OK. Then folks around these parts began to find the subdivision, which my builder called ‘the best kept secret in Texas’. His $120,000 house is now closer to $350,000 and rising, and his taxes are on following suit.

This is not a problem for the near 65 year old retiree as both the school district and county taxes are capped when you reach 65 for this area. The only tax left is a utility tax, and it is going down as property values go up. However, the further you are off the 65 figure, the greater the effect of Texas property taxes affect you.

Overall Texas has one of the lowest total tax rates, however, I would caution the early retiree to be cautious of the potential for a sizable increase in property tax before you reach the age of 65.

 

[perinova]

Property taxes are a problem in many states.
What is the range in tax rates in TX?
How will the recent tax reform affect it in the near future?

 

[macdaddy]

Texas has got to be one of the worst states for early retirees from a tax perspective... no income tax but sky high property and other taxes.

 

[Texas Proud]

My property tax is a bit over 3% of my home value..

 

[Nords]

Overall Texas has one of the lowest total tax rates, however, I would caution the early retiree to be cautious of the potential for a sizable increase in property tax before you reach the age of 65.

That's good advice for retirement budget planning.

I think it's also important to consider the entire tax picture. You wouldn't avoid a state just for its property tax, any more than you'd choose to live there for its low taxes.

Hawaii regularly scores high on the national "retiree tax-friendly" surveys. However it achieves that status on the backs of its workers. If a state is low in one area, it's surely making it up in another.

 

[REWahoo]

Rustic23, you're absolutely right and you're doing the forum members a real service by warning them about retiring to Texas. Be sure to also remind them about the Ebola virus outbreak.

 

[BarbaraAnne]

The key to retiring in Texas is to get a reasonably priced home or condo (definitely not a mcmansion) that is VERY energy efficient. Not only are property taxes high, but unless you live in a co-op area, utilities are outrageous. The state legistlature is finally waking up about that. In addition, we pay among the highest home insurance rates in the country because of wind/hail damage potential.

When you are working and have a high income the lack of a state income tax makes up for the high property taxes, utilities and insurance rates for the most part. However, in retirement, a small home or condo will mean low taxes, lower utilities and insurance. The advantage Texas has is that you can find a lot of very nice homes that are reasonably priced so taxes, etc can be minimized.

By the way, we pay 2.35% of our home's value in property taxes. However, we are supposed to get some property tax relief this year (although I'll believe it when I see it). We will be downsizing in a few years when our youngest finishes high school. If DH wasn't still working we would have downsized already.

 

[Mwsinron]

200k house in Texas = a 500 to 700k one in Sacramento, Ca

I might take my chances on them higher property taxes and ebola and scorpions and snakes and fire ants and twisters and stampedes.

 

[Sam]

Ditto.

200K house in Houston = 750K to 1,000K in Southern California.

Effective tax rate is 2.8% for me. Expensive? I'm hoping that scorpions, rattle snakes, heat, and humidity keep people from Cali, Florida, NJ, Mass away so we can maintain our sane standard of living 8)

 

[Orchidflower]

It's the flooding and tornadoes that keeps Texas insurance rates sky high. Texas is the #1 State for high insurance rates. After all, the Austin-San Antonio corridor is the premier flash flood area of the nation.
Property taxes can be low in some of the counties, but beware if that county is close to a metro area. For example, Parker County is just to the west of Ft. Worth, which is prime territory; however, Parker County also is one of the prime counties for getting struck by tornadoes, too, so be careful when doing this homework. If a county's property tax rate looks too low for the area, I suggest you dig a little deeper to see if there is a reason it is so low.
Another negative about Texas is that your property will appreciate at a snail's pace compared with other cities. It's discouraging, but there is just too much land in Texas available and no density; hence, Texas has very poor property appreciation historically.
My utilities were about the same in Chicago as in Houston, so I didn't see much difference there.
The plus side for Texas is that Texas has the lowest housing prices in the nation.
If you are willing to live in a condo or bungalow or smaller ranch home, your utilities and property tax rates won't be that high.
Surely, with no State income tax on intangibles (stocks, bonds, interest), living in Texas could be a benefit--particularly for those of us with no pension monies coming in. That surely is better than paying a 3% intangibles tax to Illinois or a 8% to Delaware, for example, on the State income tax.
If I had a pension to live on when I retired, I think I would go to Delaware; but, for those of us who don't and would get stuck paying a percentage of our monies to intangibles taxes, I think you are so much better off in a no tax State.
Nevada really has the best tax deal if you cannot hack Wyoming (even better), but Nevada is not built up enough citywise and Las Vegas has expensive housing, in general, plus water problems now. Well, there is always Florida to consider too....

 

[Rustic23]

The main purpose of my post was to bring an awareness of property increases have on early retirees. For the most part, Texas is retiree friendly. When you reach 65, your school tax is frozen and in some cases your county taxes. If that is not good enough, you can defer your taxes at 8% simple interest. Over time that is about equal to a little over 5% compounded. (I think).

The problem the neighbor has is he purchased in an area that was ‘real estate depressed’ yet highly desirable. As I said 1 acre on a large lake, with underground utilities, water and sewer, was less than $35,000. A similar site on Lake Conroe, just north of Houston, would be $150,000 +. When he purchased, his property tax was about $2,000 a year. Today they are over $9,000. As lake front property is used up around Houston, Lake Livingston, is the next in line, and he can expect further increase in his home’s value.

As far as properties not appreciating in Texas, we purchased an 1,800 sqft home in Houston in 1998 for $96,000. We sold it for $150,000 in 2006. Maybe not as hot as other markets, but where in say… San Francisco, can you get 1,800 sqft for $150,000, 20 min from downtown? Well one you could live in without a gun.

Now as ReWahoo says, there is that Ebola thing. I think it is only in his and my neighborhood, so, anywhere else in Texas you would like to go might work out.

Oh, our tax rate is a little over $3 per $1,000 of value.

 

[2B]

I think the secret to retiring in Texas is to "live" in a PO box at a local UPS store. You then have "vacation homes" in other states so you can make extended visits without triggering that state's income tax. You get to move to nicer areas during the year plus avoid Texas' property tax and the other state's income tax.

The Ebola has wiped out most of my neighborhood. I'm paying about 3.8 cents per hundred.

 

[Jake46]

Here's my 2 cents. I have lived in Texas for 35 years, As I approached retiring, I considered lots of places. If you look at the overall cost of living, it's very hard to beat Texas (no income tax, reasonable real estate -- outside of Austin, energy costs, etc.). I'm retiring to Fort Collins, Colorado but not to save money. I just happen to miss four seasons and have lived in Colorado before and miss it.
Jake46

 

[LOL!]

It's pretty easy to avoid tornadoes in Texas: just don't live within 3 miles of a mobile manufactured home.

 

[2B]

It's pretty easy to avoid tornadoes in Texas: just don't live within 3 miles of a mobile manufactured home.

That's about 2 1/2 miles outside of Texas.

 

[OKLibrarian]

Only if you're not on the OK side of the state. We have enough trailer magnets here to make texas weather look dull.

 

[whitestick]

That issue of taxes, along with maintenance, and HOA fees, and general Fix-Ups, is one of the main drivers for us to sell our house at Retirement (about 60), and rent a very nice but downsized place for almost exactly the same amount of monthly outlay. Thus the idea of a paid off mortagage doesn't gain as much, especially as someone already mentioned about the relatively slow rate of appreciation, although I think that was due to long memories of the housing bubble/crash in Texas in the 80s.
Plus the added advantage of taking the equity and reinvesting provides even more income and adds to the total net worth. After 65, that might change, but for now, a clear winner.

 

[BarbaraAnne]

Good Scott Burns column today on retiring in Texas after living in San Diego.

http://assetbuilder.com/

 

[REWahoo]

http://assetbuilder.com/

Another reason (in addition to the Ebola outbreak) you don't want to move to Texas:

"...it currently costs $2,669 to rent a 24-foot Budget truck to move from San Diego to Dallas but only $299 to rent the same truck to move from Dallas to San Diego..."

 

[HFWR]

My home is appraised for tax purposes at around $132k, including land. My taxes are around $2900. HOI is around $800. 1650sf in the burbs...

 

[Orchidflower]

I stand by my poor property appreciation in Texas stand. Here is a real world example: 1980 sold house in Chicago for $85K that I purchased for $70 a few years earlier. That house in innercity is worth $450k. In 1982 purchased house in Bellaire--surely, one of the toniest areas of Houston and a Drs. and lawyers ghetto--for $70K. That house was sold in 2003 for $165K. You do the math! It makes me sick, but too late to do anything about it now.
Again, if you look at any real estate boards the property appreciation in Texas is one of the worst in the nation...unfortunately.

 

[Orchidflower]

Didn't Texas enact a new law that caps the property tax increase at 3%? I remember hearing something from friends in Texas, because they couldn't wait to tell me about it knowing that I was interested in that little tidbit of information. If that's the case, it isn't too bad for those under 65.

 

[Rustic23]

Didn't Texas enact a new law that caps the property tax increase at 3%?

Nope, no cap at 3%. Cap is 10% per year with no more than 30% in any given 3 year period. There is a group in Houston pushing for a lower cap, but it is predicted to go nowhere in the legislature this year, and the Texas legislature only meets every two years.

 

[Mwsinron]

For the 65 rule. If married do both spouses need be 65 or just one? If both names are on the title.

 

[Rustic23]

Only one need be over 65. Here is the jest of the law.
Age 65 or older homeowners

If you are age 65 or older, your residence homestead will qualify for more exemptions.

You will qualify for a $10,000 homestead exemption for the school taxes on your home's value, in addition to the $15,000 exemption for all homeowners.

If you qualify for both the $10,000 exemption for over-65 homeowners and the $10,000 exemption for disabled homeowners (see the following section), you must choose one or the other for school taxes. You cannot receive both.

In addition to the $10,000 exemption for school taxes, any taxing unit (including a school district) can offer an additional exemption of at least $3,000 for taxpayers age 65 or older.

Once you receive an over-65 homestead exemption, you get a tax ceiling for that home on your total school taxes. The school taxes on your home cannot increase as long as you own and live in that home. The tax ceiling is the amount you pay in the year that you qualify for the over-65 homeowner exemption. The school taxes on your home may go below the ceiling, but the school taxes will not be more than the amount of your ceiling.

However, your tax ceiling can go up if you improve your home (other than normal repairs or maintenance). For example, if you add a garage or a game room to your home, your tax ceiling can go up. Also, your tax ceiling will change if you move to a new home.

When a homeowner who has been receiving the tax ceiling on school taxes dies, the ceiling transfers to the surviving spouse if the survivor is 55 or older and has ownership in the home. The survivor should apply to the appraisal district for the tax ceiling to transfer. The ceiling remains in effect for as long as the spouse lives in the home.

A tax ceiling does not expire when the owner conveys the interest in the home to a trust, if the owner-trustor occupies the home.

When you no longer live in the home as your permanent residence, you will no longer qualify for the over-65 exemption for the remaining portion of that year. Taxes will be prorated based on the number of days that elapsed after you no longer qualified that home for the exemption to the end of the year.

If you purchase another home, you may qualify for the over-65 exemption when you live in the new home as your principal residence. You may transfer the percentage of school tax paid based on your former home's over-65 school tax ceiling to the new home. For example, if you currently have a tax ceiling of $100, but would pay $400 without the tax ceiling, the percentage of tax paid is 25 percent. If the taxes on your new home are $1,000, the new school tax ceiling would be $250, or 25 percent of $1,000. You may request a certificate from the appraisal district for the former home to take to the appraisal district for your new home.

When homeowners who have been receiving the age-65-or-older exemptions die, the exemptions transfer to their surviving spouses. The surviving spouses must be 55 or older at their spouse's death and must live and have ownership in the home. The survivors should apply to the appraisal district to transfer the exemptions. If your spouse dies in the year of his or her 65th birthday but has not applied for the over-65 exemption, you may apply for the over-65 exemption as the surviving spouse. The exemptions remain in effect for as long as the survivors own and live in the homes.

Homeowners age 65 or older who apply for the exemptions may also pay their home taxes in installments. See the section Paying Your Taxes for details.

If you are a homeowner age 65 or older, you may defer or postpone paying any delinquent property taxes on your home for as long as you own and live in it. To postpone your tax payments, file a tax deferral affidavit with your appraisal district. You may suspend any lawsuit by filing an affidavit with the court. The deferral is for all delinquent property taxes of the taxing units that tax your home.

A tax deferral only postpones paying your taxes. It doesn't cancel them. Interest is added at the rate of 8 percent a year. Once you no longer own your home or live in it, past taxes and interest become due. Any penalty and interest that was due on the tax bill for the home before the tax deferral will remain on the property and also become due when the tax deferral ends.