7 minute read
Anyone ready to retire and hoping to find the ideal home can make the process easier by coming up with a retirement budget. This should include monthly mortgage payments, homeowners’ association (HOA) fees, and taxes. So how much of your budget will go toward taxes if you end up relocating to the Sunshine State?
Florida is one of the most popular choices in this country for active adults, partly because of its retirement-friendly taxes. Here’s what retirees need to know about taxes in Florida.
Florida Taxes
Income Tax
Largely due to its lack of income tax, Florida has one of the lowest tax burdens in the U.S. That’s right—the state constitution prohibits collecting a state income tax. Florida is only one of seven states in the country that falls into this category, but like all states, residents must still pay federal income taxes on their returns.
Retirement Income Tax
Yes, retirement income counts as income. Therefore, your pension, IRA, 401(k), and Social Security benefits are also not taxed if you live in Florida.
Sales Tax
Florida charges residents and visitors a 6% tax on the sale and rental of goods. Counties can add local taxes on top of that rate, and 55 out of Florida’s 67 counties do this. (The Florida Department of Revenue can provide specifics by county.)
It’s good to know that there are exceptions for certain goods, including two important ones: medicine and groceries. But you will pay sales tax on things like clothing and cars.
Gas Tax
All states charge tax on gas purchases, and they also add on fees for things like inspections, clean-up, licensing, and so forth. Florida’s 2023 gasoline tax rate is $0.35225 per gallon, before sales and local taxes. This might be higher than other locations, but it’s not the worst in the country.
At the time of this writing, California was at $0.511, Illinois at $0.392, and New Jersey at $0.421. Some of the states with the lowest gas tax rates include Alaska, Hawaii, Oklahoma, and New Mexico.
Estate / Inheritance Tax
The absence of any estate or inheritance tax further reduces the tax burden on Florida retirees and other residents. Florida is one of 33 states that don’t tax residents when inheriting the assets of a deceased person. Back in 2004, it was eliminated in Florida and applies to people who passed on or after January 1, 2005. However, residents must still file applicable paperwork when inheriting assets.
Intangibles Tax
Like other active adults, Floridians can own intangible assets like mutual funds, money market funds, stocks, and bonds. The state formerly had an intangible personal property tax, but that was repealed in 2006. There are two exclusions, though:
- Recurring (periodic) taxes due at the same time, like rental payments
- Nonrecurring taxes on payment obligations associated with mortgages or other liens of real property.
Property Tax
State governments don’t collect property taxes. Local government tax assessment offices set these taxes, and that’s how the state receives much of its funding. Florida county taxes are relatively high, but there are exemptions that residents can take advantage of to reduce their tax burdens.
Florida’s 2023 effective median property tax rate is 0.80 %. This is significantly below the national average of 0.99 %. The median amount residents shell out is $2,338 a year, and that’s $400 less than what the average U.S. homeowner pays. Which states have the highest property taxes? The top five are New Jersey, Illinois, New Hampshire, Vermont, and Connecticut. The lowest is Hawaii, at 0.32 %.
When comparing retirement community properties in Florida, ask for specific details about the property taxes. This can be found on the listings, or you can ask your mortgage lender or real estate agent. The county’s property appraiser’s office might also have a website where you can find a tax estimate for the home.
Property Tax Exemptions
The Florida Department of Revenue is a good source of information for state tax exemptions that can reduce property tax bills. Two of the best-known programs are the Homestead Exemption and the Save Our Homes assessment limitation. The Homestead Exemption applies to people who purchase permanent homes in Florida (or buy ones for dependents). These Florida tax benefits can reduce the taxable value by up to $50,000. If you plan to purchase a resale home, ask if the exemption was already applied.
That exemption qualifies a home for Florida’s Save Our Homes assessment limitation. How does that work? After the first year of receiving the exemption, subsequent yearly assessments cannot increase by more than 3% or the Consumer Price Index (CPI) percentage change—whichever is less.
There are also property tax breaks for seniors in Florida, plus ones for:
- Veterans and active-duty military service members
- Property owners with disabilities
- Disabled first responders
- Widows
- Residents who are legally blind
For example, governing authorities of municipalities and county commissioners may allow an additional $50,000 homestead exemption for permanent residents who are ages 65 and up, as long as their gross incomes are below $20,000. There are other restrictions as well, such as the property’s value and the length of time the owner has lived in the state.
How Do I Budget for a Florida Retirement?
Once you have figured out how much available income there is for your Florida home, you can start budgeting for the costs. You can determine the monthly mortgage, insurance, and mortgage interest payments for listed sale prices. However, the agreed-upon sale price might be higher than the listing. Keep that in mind and focus on what you can realistically afford, without having to stretch your available assets to the breaking point.
Buying a home involves down payments and closing costs too. Florida has a 0.7 % deed tax on home purchase prices (also called stamp taxes), but those are typically paid by the seller. There may also be a 0.35 % tax on the loan amount.
Also, think about the long-term costs of owning your Florida home when budgeting. HOAs may provide lawn care and exterior maintenance included in their fees. Those vary by property and if the Florida retirement community has a golf course, there will likely be membership fees if you choose to join.
Interior maintenance and repairs are less predictable but typically less of a concern with newer homes. It’s also helpful to live in 55+ communities that have onsite amenities like beauty salons that you walk to. Locations close to grocery stores, restaurants, and other landmarks can also save time and money.
Florida Taxes and Budgeting For a Home Purchase
As for taxes, you won’t have to worry about paying any on income, estates/inheritances, or investments. There’s that 6 % sales tax plus additional ones levied by counties. For now, the highest sales tax rate in Florida is 7.5 %, and it’s this high in about 180 different cities. The state gets much of its funds from that, plus corporate income taxes.
Now that you have a better understanding of state taxes in Florida for retirees, you might find that you won’t have to devote a huge portion of your budget to them. But remember: Federal taxes are filed separately.
Florida is a tax-friendly state for retirees, and 55places can help you find your dream home in a 55+ community. Let 55places.com help you find the perfect active adult community in Florida!
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