Kitces on retiree state taxes

[Sunset]

What is your mill rate for real property tax?

Ours here in Connecticut vary by which of our 169 towns or cities you live in. They range from 11 to 74. (1.1% to 7.4% of assessed value.) Assessed value is supposed to be 70% of market value at the time of the last reassessment (required by law every 5 years). So we pay from 0.77% to 5.2% of market value every year. The lowest mill rates are in the wealthy rural towns that have no municipal services (no fire department, no police department, regional school districts) and high property values. The highest mill rates are in the large, poor cities with low property values.

I pay about 1.9% of market value every year in my generally middle class city of 50k people. It just so happens that our reassessment was last October, so that value is used for this year's taxes and the next four, regardless of what the housing market does in the interim. The mill rate will change yearly depending on the City budget.

So, yes, you could have zero income tax if you retire here, but you'll still pay property tax if you own a house, although you could choose where to live in order to minimize that. There are also credits against your property tax if you are low income (<$45,800 AGI for MFJ) and over 65.

Ours vary by where a person lives in the State as well. Based on a tax bill from a couple of years ago, our rate is 3.6% of the market value of the property.

They do all this funny math to get an assessed value for taxes, then "equalize" it, then charge a local tax rate of 11.149% .

But the bottom line is it's 3.6% of market value, it get reassessed every 3 yrs with a new market value. The market value is pretty close to the selling price when it comes out.

 

[FANOFJESUS]

Sorry, but any retiree tax analysis that excludes property taxes is worthless. We moved from the Chicago area to Central Indiana in 2014. This year we will pay about $500 in state income taxes to Indiana. If we lived in Illinois we would pay nothing. However, the property taxes on our house in Illinois would be a bit north of $10,000. Here (for a similar home) it is $3,300. So, we're paying $500 more in income taxes but saving (at least) $6,700 on property taxes. I'll happily pay a little in Income tax to save that much on property taxes. This year alone we're about $6,200 ahead on that trade off and that continues year after year. YMMV

Very true most people pay less in state taxes than taxes on a nice Chicago house. They are nice houses but not mansions.

 

[teej1985]

I agree with the discussion regarding property taxes. It's a good analysis of income tax, but income tax only. The other major tax is property tax, which he completely ignores. The mil rate for us in central PA is 1.6% and is unchanged in 20 years here. Around Philadelphia it is much higher.

California has a progressive tax, like the federal tax. Another feature of California is property tax is quite low, due to Prop 13, which was modified somewhat in recent years. The property values are very high in many areas. But if you are a long time owner, or inherited your property from your parents, your property tax can be insanely low, much lower than a mil rate of 1%. The townhouse we sold in 1998 for $360K is now worth over $1.5M, but had we kept it the taxes would be based on 1% of our purchase price with a max of 2% increase each year. Had we kept it and rented it out, our real estate tax would currently be about $5200, or a mil rate of 0.3%. The mil rate on our California orchard was about 0.5%, but one of my cousins transferred his share to his sister and that quarter share got taxed at current property value, increasing the mil rate to about 0.7%. Still it's a bargain.

I thought California changed the law so that people who inherit don't get the historical property tax assessed value?

 

[Gearhead Jim]

DW and I considered moving out of Illinois when I retired 17 years ago, but with no income tax on SS/Pen/IRA; our total tax burden is not great. The high property taxes are offset by the fact that we haven't paid any state income tax since a year after I retired.

 

[daylatedollarshort]

I thought California changed the law so that people who inherit don't get the historical property tax assessed value?

Kids can still inherit parents' property taxes if they live in the house, and the benefit is limited to the current taxable base + $1M.

 

[FREE866]

Not sure if I read this correctly so I'd appreciate clarification.


". And the benefits go beyond just paying zero tax on Social Security income: Because Social Security is subtracted from the taxpayer’s taxable income....."


So if I live in NY the total amount of SS I will receive is not counted as income at all?....

 

[GravitySucks]

Not sure if I read this correctly so I'd appreciate clarification.


". And the benefits go beyond just paying zero tax on Social Security income: Because Social Security is subtracted from the taxpayer’s taxable income....."


So if I live in NY the total amount of SS I will receive is not counted as income at all?....

It's counted in Recomputed Federal Adjusted Income and then subtracted for NY Adjusted Gross Income.

So for the income tax purposes, yes it is not counted.

 

[FREE866]

It's counted in Recomputed Federal Adjusted Income and then subtracted for NY Adjusted Gross Income.

So for the income tax purposes, yes it is not counted.

Wow. Didn't know that. Thank you!


I'm 56 now and my "plan" is to wait till 70 to start collecting. Having it not be taxed is a major positive!