Kiplinger's State Guide to Taxes on Retirees

[leftyfrizzell1963]

I'm born and raised in Texas, and figured I would live here my entire life. However, as I approach retirement, I see the property taxes in Texas become a significant recurring expense that can't be avoided (assuming you don't want to live in a shack in the country).

In Texas, we brag about not having a state income tax. However, because the valuations(assessments) go up every year (because the agencies re-assess every year), the state is able to get more tax dollars every year "without raising taxes". Its a chickensh*t way the politicians can get more revenue but never have to vote to raise taxes.

A year ago, I was doing some research and came across Kinglinger's state by state guide for taxes on retirees. It had Texas as a favorable rating of "tax friendly" (5 categories - "most tax friendly", "tax friendly", "mixed/neutral", "not tax friendly", and "least tax friendly"). I couldn't believe it.

Well, I went back to the site/page today, and it had a new analysis date of this month. And Texas has been switched to "not tax friendly"! And when I clicked on the details, it said because of the high property taxes. I was right!!! Link below. Its pretty helpful as it allows you to do some side by side comparison's.

The bottom line is - I don't see the tax laws changing in this area anytime soon, so sadly I am going to have to move out of Taxes (intentional new mis-spelling), and that could free up over 10K year in cash annually. It is too big of a number to ignore.

https://www.kiplinger.com/tool/retir...rees/index.php

[Marc]

That is bogus; Texas freezes largest part of property tax at 65. Also, they show California as not having estate tax that is wrong. Yes, my property taxes in Texas are higher than combined income and property taxes in Alabama but that will normalize when I turn 65.

Marc

[aja8888]

My 2019 property taxes went down a bit this year. I've lived in Texas for 27 years now and have a homestead exemption and an over 65 tax freeze.

[USGrant1962]

I've looked at that tax guide a number of times over the years. It has always been over-simplified. But it looks like they did a major rework - that made it even worse! IMO, it may be accurate for low-income retirees but is nonsense for average or better income.

For example, in my local region, saying that Maryland and Pennsylvania are equivalent is total nonsense for anyone at average or better income. Maryland is much worse. Prior versions always had PA as somewhat tax friendly and MD as not friendly, which is about right.

And they have always over-weighted sales tax. So Delaware looks great but is not really any better than surrounding states (it has a much higher income tax than PA for example).

[Sunset]

Well they are still right about IL being Least Tax-Friendly, with 4.95% State income tax AND the 2nd highest property taxes, 7th highest Sales tax, plus estate tax at 16% on $4MM+ estates.

They must use some Average income as they actually claim the State income tax is lower for Married couple and that is simply BS. But they claim it's after adjustments.

[rk911]

well, illinois does not tax retirement income or SS...for now. if the upcoming referendum (nov 2020) passes illinois will abandon the fair flat income tax model for an un-fair graduated tax. our governor has not said what the rates will be, what the income ranges will be or the process for changing either (gov executive order, legislative bill, etc). "trust us", he implies. this coming from someone who ripped all of the toilets out of one of his mansions making the home uninhabitable resulting in a huge reduction in his property tax. he got caught, paid the tax and then got elected.

[Sunset]

Quote:

Originally Posted by rk911 well, illinois does not tax retirement income or SS...for now...... .

Yes, that is one good thing about this State, they couldn't figure out how to make the politician retirement pensions tax free by themselves, so everyone got it.

What we are doing is pulling $$$ from IRA, rather than taxable account selling for capital gain, as the IRA only has Fed taxes on it.

Hopefully will move to an income tax free State before selling the capital gain stocks.

[rk911]

Quote:

Originally Posted by Sunset Yes, that is one good thing about this State, they couldn't figure out how to make the politician retirement pensions tax free by themselves, so everyone got it. .., .

you cynic, you. . but you’re undoubtedly right.

[Onward]

Quote:

Originally Posted by Marc Also, they show California as not having estate tax that is wrong

There's no CA estate tax that I know of.

[Aiming_4_55]

Quote:

Originally Posted by Onward There's no CA estate tax that I know of.

CA estate tax might get reinstated, but it's not making it on the ballot yet.

https://www.forbes.com/sites/toddgan.../#32c9265338f3

"The legislature had intended to put on the 2018 ballot and then the 2020 ballot a proposition to reinstate California’s long-abolished estate tax. The 40% estate tax would kick in at $3.5 million in estate value – well below the federal estate tax exclusion."

[Aiming_4_55]

As far as tax friendly, it all depends. While I agree, TX property taxes may seem higher at 2 - 3%, the value of homes are much lower than CA where property taxes are about 1%. In my experience, a 3 bedroom home in LA, CA is about $800k ($8k in prop taxes) and Dallas, TX is about $300k ($6k - 9k in prop tax). It's not too bad from my point of view. In Tx, you can get more house for your money also.

In my case, comparing CA and TX, my benefit comes from the reduced Sales Taxes and Payroll taxes: about $3k ($60k of purchases) and about $18.6k (9.3% payroll taxes). Even after I ER, I will probably pay taxes on Roth conversions for 10 years, so Tx probably a better place in respect to taxes. I have family in both States and my employer allows me to work in either locations so I've being researching options.

[REWahoo]

Quote:

Originally Posted by leftyfrizzell1963 I'm born and raised in Texas, and figured I would live here my entire life. However, as I approach retirement, I see the property taxes in Texas become a significant recurring expense that can't be avoided (assuming you don't want to live in a shack in the country). In Texas, we brag about not having a state income tax. However, because the valuations(assessments) go up every year (because the agencies re-assess every year), the state is able to get more tax dollars every year "without raising taxes".

Quote:

Texas has no state property tax.

At least that's what the state website says: https://comptroller.texas.gov/taxes/...tax/basics.php

If you look at your tax bill you'll see you aren't being taxed by the state - they don't get one red cent of those property taxes. Property taxes are levied by the school district, city, county, Emergency Service District, Hospital District, Community College District, County Road District, groundwater district, MUD, SUD and any number of other quasi-governmental entities that can figure out a way to get a hand in your pocket via a tax. But is isn't the state so please don't point your finger at those pillars of virtue in Austin.

[Bamaman]

My best friend lives in Highland Park, Texas (N. Dallas), and he got mad and sold his house when the property taxes hit $50,000. Now lives in a luxury apartment.

Our Alabama property taxes are $1,100 on a $400K second home on the lake. Our property taxes on our main residence are $0 because my wife is disabled. Surrounding states are considered low property tax states, and their property taxes are 4x that of ours.

I've not paid any state income taxes in years due to medical expenses and so much of our income being defined pension and social security that's excluded.

Combined with cheaper housing costs (to buy), I consider Alabama a Ultra LCOL place to live. But don't tell anyone.

[Offgrid Organic Farmer]

There are many sites that try to compare states. Each uses different criteria, and each site comes to different findings.

New England has long been considered to be 'high' taxed.

I live in Maine, where my pension is not taxed, and where my property taxes are very low.

For a 2400 sq ft house on 150 acres of land with a quarter-mile of riverfrontage, I pay ~$850 / year.

So much of this is about perception.

Florida is commonly thought to be the primary state for retirees. Yet Florida does not have the oldest average age, instead Maine holds that honor. Nor does Florida have the highest percentage of retirees, again Maine holds that distinction.

[aja8888]

Quote:

Originally Posted by Bamaman Combined with cheaper housing costs (to buy), I consider Alabama a Ultra LCOL place to live. But don't tell anyone.

But, but..you keep telling us every chance you get?

[braumeister]

I looked at Kentucky and there is a rather major typo in the article:

Quote:

Tax breaks for seniors: For homeowners 65 and older, $379,300 of the assessed value of residential property is exempt from state taxes under the homestead provision for 2019

The amount changes from time to time, and they did a sloppy cut-and-paste.
Actually, the homestead exemption is $39,300. That stray "7" makes a difference!

[leftyfrizzell1963]

Quote:

Originally Posted by REWahoo At least that's what the state website says: https://comptroller.texas.gov/taxes/...tax/basics.php If you look at your tax bill you'll see you aren't being taxed by the state - they don't get one red cent of those property taxes. Property taxes are levied by the school district, city, county, Emergency Service District, Hospital District, Community College District, County Road District, groundwater district, MUD, SUD and any number of other quasi-governmental entities that can figure out a way to get a hand in your pocket via a tax. But is isn't the state so please don't point your finger at those pillars of virtue in Austin.

On the surface, everything above is true. However, they are all forms of governmental taxation, be that at local/county/regional level. For all the items listed above except for school district, the taxes are nominal. For the school districts, there is something called "Robin Hood", where the "rich" school districts have to pay the state a percentage of their taxes collected where they supposedly distribute it to the "poor" school districts. The state is in charge of Education. Instead of supplementing the poor school districts with extra funds, they chose this solution. Because of the rich/poor calculation the "rich" school districts had to raise their rate to maximum allowed, thus making property taxes outrageous if you live in reasonably nice area. This whole "Robin Hood" thing is another contentious issue which I do not want to debate here and derail this thread. The point is the amount of property taxes that will have to be paid annually is a large number that has to be considered, and is now forcing me to evaluate other states to avoid this large number.

[REWahoo]

Quote:

Originally Posted by leftyfrizzell1963 This whole "Robin Hood" thing is another contentious issue which I do not want to debate here and derail this thread.

Agreed. You'd be preaching to the choir in my case.

Quote:

Originally Posted by leftyfrizzell1963 The point is the amount of property taxes that will have to be paid annually is a large number that has to be considered, and is now forcing me to evaluate other states to avoid this large number.

I think what you'll discover is each state has found a way to tax residents for services rendered. If they don't get you with property taxes they'll get you with income or some other tax. You won't be able to avoid it by moving but you might be able to reduce the tax hit somewhat without having to relocate to another state.

We followed a portion of your, "live in a shack in the country" option (foregoing the "shack" portion) and moved from the city into a neighboring less tax hungry county. That plus not having city taxes is saving us an estimated $8,000/yr in property taxes on an equivalent house, while having a lot measured in acres rather than square feet.

[Chuckanut]

Quote:

Originally Posted by Offgrid Organic Farmer Florida is commonly thought to be the primary state for retirees. Yet Florida does not have the oldest average age, instead Maine holds that honor.

Does that translate into a smaller percentage of the population being school age? K-12 education is a huge part of my property tax bill, that's why I'm asking.

[leftyfrizzell1963]

Quote:

Originally Posted by REWahoo We followed a portion of your, "live in a shack in the country" option (foregoing the "shack" portion) and moved from the city into a neighboring less tax hungry county. That plus not having city taxes is saving us an estimated $8,000/yr in property taxes on an equivalent house, while having a lot measured in acres rather than square feet.

And we will probably do the same in the end (and not move out of the state). Not because of state allegiances, but because of DD will be starting a family soon and DW doesn't want to be too far away.