SmartAsset Calls Florida “Very Tax Friendly” for Retirement
If you're thinking about retiring to Florida, the tax situation is one of the biggest perks.
SmartAsset ranks Florida as one of just seven “Very Tax Friendly” states for retirees.
States in this category either have no state income tax, no tax on retirement income, or a significant tax deduction on retirement income, plus friendly sales, property, estate and inheritance tax rates.
Let me break down what makes Florida earn that ranking.
No State Income Tax
Florida is one of just a handful of states without a personal income tax. That means your Social Security benefits, pension income, and withdrawals from your IRA or 401(k) are all tax-free at the state level.
Think about what that means for a moment. If you're pulling $50,000 a year from your retirement accounts, you're not handing a chunk of that over to the state. That money stays in your pocket.
This alone could mean thousands in tax savings compared to other states.
Property Taxes in Florida
The median property tax rate in Florida is 0.82 percent of a home's assessed value, which is actually less the national average of 0.90. So Florida isn't making up for the lack of income tax by hitting you hard on property taxes.
But here's where it gets interesting.
The Homestead Exemption
If you own property in Florida and make it your permanent residence, you can qualify for a homestead exemption of up to $50,000. This exempts $25,000 of your home's assessed value from property taxes, with an additional exemption of $25,000 for your home's assessed value between $50,000 and $75,000 for non-school property taxes.
There's another benefit too. Once you qualify for a homestead exemption, property assessments for each following year can't increase more than 3 percent or the percent change in the Consumer Price Index, whichever is less.
This gives you some protection against wild swings in your property tax bill from year to year.
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Sales Tax
Florida has a state sales tax of 6 percent, and local governments can collect local sales tax up to 1.5 percent. Most groceries and prescription drugs are exempt from sales tax.
Sales tax is one of those things you don't really notice on a day-to-day basis because you're not writing one big check like you do with property taxes. But it adds up over time, so it's worth keeping in mind.
No Estate or Inheritance Tax
Florida has no estate or inheritance tax. If you're planning to leave assets to your heirs, they won't get hit with state taxes on what you pass down to them.
You still need to be aware of federal estate tax rules, but that's a conversation to have with your estate planning attorney or financial advisor.
The Bottom Line
Florida is extremely tax-friendly for retirees. The lack of state income tax is the big headline, but when you add in the homestead exemption and the absence of estate and inheritance taxes, it's easy to see why SmartAsset gave Florida that “Very Tax Friendly” designation.
Of course, taxes are just one piece of the puzzle, but it's a piece that works in your favor here. You can see the full SmartAsset report here.
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