Welcome Tax Relief For Seniors Living Independently

Tax laws and their financial implications can influence your decision to live independently in the greater community or make the move to senior housing after you retire. The property taxes and state individual income taxes you pay are part of your cost of living.

The good news is you can benefit from tax breaks in the form of tax exemptions, exclusions, reductions, rebates, and deferral programs that many state and local governments offer seniors.

Property Taxes

Local governments across the nation vary widely in the property taxes they levy. Yet retired seniors in many communities get property tax relief in the form of exemptions and property tax and rent rebate programs.

Rebate Programs

Programs, like the one supported by the Pennsylvania Lottery, help senior homeowners in that state who qualify. The maximum rebate is based on your household income. In calculating your income limit, the state excludes half of your social security retirement income.

Lower Property Assessment

In some tax jurisdictions, property tax relief for seniors comes in the form of lower real estate assessments. While the specifics of programs vary by state and local tax jurisdictions within states, most states offer reduced assessment rates for seniors.

Some states increase the homestead exemption for low-income seniors to help lower their property tax bills. Generally, you must meet age and income requirements to qualify for these programs.

Tax Deferral Programs

States that offer property tax deferral for seniors pay your property taxes. The state then places a lien against your property until you or your estate repays the deferred amount in addition to the interest that accrues. The amount of your property taxes that qualify for deferral depends on how much equity you have in your home.

Low Tax Districts

Low property taxes mean lower housing costs. If you are looking to relocate to an area where the property taxes are low, local tax jurisdictions in Alabama, Louisiana, and Mississippi charge some of the lowest property taxes you will find in the country. Although these states charge sales tax to generate tax revenue, residents don't have to pay sales tax on a number of consumer items, including residential utilities, prescription drugs, or gas at the pumps.

Independent Living Communities

If you choose the independent living option, a continuing care retirement community (CCRC) offers, you won't pay property taxes directly to the county or municipality. Instead, the monthly service fee you pay includes a monthly property tax payment. Although you likely won't qualify for a property tax rebate program, you may be able to deduct the portion of your monthly service fee the community allocates toward the payment of property taxes. You can take the deduction on your federal income tax return if you itemize deductions.

Personal Income Taxes

Not all states impose an individual income tax. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming collect their tax revenues from other sources, including sales and use taxes, gasoline taxes, property taxes, and severance taxes levied on oil and gas resources.

Two states – New Hampshire and Tennessee – have no personal income taxes on earned income, but they tax income from dividends and interest earnings.

The remaining states that tax individual income vary in how they tax pension and social security income. Some states exempt all retirement income.

For instance, Pennsylvania does not tax distributions from qualified retirement plans after age 59 ½. Qualified plans include 401(k) plans, IRAs, employer-sponsored deferred-compensation plans, or other public and private pension funds and retirement accounts that do not tax your contributions until you withdraw money.

Most of the states that tax retirement income establish some amount they will allow you to exclude. Some states allow you to exclude a larger portion of your retirement income than other states allow.

While there are 6 states – California, Minnesota, Nebraska, North Dakota, Rhode Island, and Vermont – that tax all your retirement income from public and private pension plans, most states don't tax your social security benefits. The states that do usually tax a portion of your social security retirement benefits only when your income goes over a certain limit. For more information, contact Carriage Oaks Retirement Community.