The Retiree Benefit Too Few Claim: Lower Property Taxes
A patchwork of state and local benefits goes underutilized
Few older adults take advantage (or even know about) property tax relief programs, which can reduce your annual bills by as much as half in some places. In fact, if you’re at least 55, you can take advantage of some of these discounts even while you’re still working.
That’s good news for near and current retirees who are feeling their budget pinched, and could be a help to those who want to afford a dream home. Let’s say you’ve wistfully set aside that dream of moving to a house in Hawaii or a trendy condo in Washington, D.C., because those real estate markets are pricey.
Both of those places have big property tax breaks for seniors. Read on.
Nationally, these programs offering discounts to older homeowners are available in nearly every state and can save thousands off your tax bill. Those who take advantage of property tax programs receive an average of $1,100 in either tax credits or a direct refund, according to the AARP Foundation.
Let’s say you live in a suburb in Loudoun County, Virginia, you’re at least 65, and you want to downsize to a walkable city like Washington, D.C., to take advantage of free museums and a thriving culture. Loudoun offers property tax breaks for seniors, but only if your net worth is below $920,000, which renders a lot of retirees ineligible. So, on a $600,000 home in Loudoun, you’d pay about $6,600 annually in real estate taxes.
Move to Washington D.C., and your annual tax bill on a $600,000 condo falls to just $1,600 — that’s a savings of $5,000. Not only does the nation’s capital have low property tax rates, the city also gives a 50% discount to seniors. There is a limit: Your federal adjusted household income has to be below $133,100. Still, that means many people 65 and older qualify.
Or, say, you’re like me and have dreams of retiring in Hawaii. Yes, home values are higher than average, but median real estate taxes are low. So a $600,000 home in Kauai runs about $1,500 a year in property taxes, and that bill drops if you’re 70 or older.
Of course, part of the reason places like D.C. and Hawaii have lower taxes and more generous discounts to begin with is because it costs more to live there. The value of $100 in the District is only about $85.50, according to the Tax Foundation, and in Hawaii, it’s $84.30. Still, keeping more than $5,000 a year in your retirement account earning interest is a savings worth factoring into your calculations. Using conservative assumptions, that means you retain $60,000 in your retirement account after 10 years.
You can easily see if your locality offers discounts by searching the internet. If you’d like to browse and compare, I suggest using the Lincoln Institute of Land Policy’s Property Tax in Relief Programs toolkit. (Full disclosure, I also write for the Lincoln Institute.) From the menus, select: your state, the year, the exemption types, and your age for eligibility criteria. The results page will list all programs available, and you can click on each program to learn more specifics.
You may be wondering if an age-related discount could make property taxes more affordable in places with some of the highest tax rates. Not necessarily.
In Connecticut, the average resident pays more than $5,000 in real estate taxes each year on a median home value of $270,00. Most residents qualify for a discount between $150 and $1,100. In New Jersey, median home values are around $320,000 with an average tax bill of more than $7,400. The average senior resident gets a discount of about $1,000.
Last, don’t forget to factor in the rest of your state and local taxes when building your retirement budget. Seven states — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — don’t tax income at all. Two — New Hampshire and Tennessee — only tax dividend and interest income.
A full 37 states don't tax Social Security income. If you are drawing on your 401(k) or if you have a pension, Kiplinger’s says Illinois, Mississippi and Pennsylvania won’t tax that income. Alabama and Hawaii also don’t tax pension income.