The Tax Impact of Where You Live in Retirement

The state where you live has always made a big difference in your tax liability. Some states have high income taxes; others, such as Florida and Texas, don't have income taxes at all. The property-tax rates can vary widely from state to state, too. And some states that have low income and property taxes may make up the difference with high sales taxes. When deciding where to live — and where to retire — it's important to consider the impact of all kinds of taxes on your retirement income and expenses.

And it is even more important to assess the tax situation now that the new tax law limits the deduction for state and local income, property, and sales taxes to $10,000 per year.

When deciding whether to move in retirement, or where to establish residency if you're a snowbird, consider what taxes you're likely to pay. Some states may not tax pension and Social Security income, for example. After you retire, that may represent a significant chunk of your income. States with high property taxes can have a big impact on your retirement savings if you plan to stay in your home as you get older, especially if property values in your area are rising. However, some states have special property-tax exemptions for people over age 65. And high sales taxes could cost you a pretty penny, even if you don't own a home or earn taxable income.

You can find out more about state and local tax rates at If you're a snowbird and move to a warmer state during the winter, consider taxes when choosing the state in which you establish residency. Find out from the state department of revenue about the steps you need to take to make that state your domicile, or tax home. You usually need to live in the state more than half the year, and it helps to change your driver's license and your car and voter registration to the state, and to list that address as your primary residence with your financial institutions. You may also need to file "Declaration of Domicile" paperwork with the state. These steps can all help if the other state decides you should be paying taxes to them instead.


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