When thinking about possible retirement locations, your budget will probably be one of the factors in your equation. There may be some variables over which you have quite a bit of control, but maybe not so much with regard to taxes. Knowing what state taxes you can expect to pay and taking them into account will help you determine what disposable income you can count on having.
Arizona, with a diversity of climates and landscapes, from the Sonora Desert in the south to the higher altitudes and more moderate temperatures in the north, offers an equally diverse choice of lifestyles to suit all budgets. Housing costs and property taxes can vary considerably in different parts of the state. Arizona has a state income tax, which may take a share of your money, depending on the source and level of your income. There are state and local sales taxes, and you will pay an annual tax on your vehicle.
Arizona property taxes
Property taxes in Arizona are administered by the county tax assessors and the rates vary considerably from one area to another. But to give you a general idea, Judy Hedding, in the article “How Much Will You Pay in Real Estate Tax on Your Home in Arizona?” on the About.com website, indicates that the average tax rate, before exemptions and rebates, on an owner-occupied home would be about 1.3% of market value. So if your home has an assessed full cash value of $350,000, you would pay $4,550 per year in property taxes.
Paul B. Bartlett, P.C., on the website www.tucsonelderlaw.com, points out some property tax relief measures that are available to seniors in Arizona. If you are age 70 or over, have lived in your current home for at least six years, have lived in Arizona for at least ten years, and your total taxable income is not more than $10,000, you may be able to defer payment of your property taxes. You should contact your county tax assessor for more details and to find out how to apply for the deferment.
There is a property tax exemption for widows, widowers, and totally disabled persons. The exemption reduces the assessed value of the property by up to $3,000, thereby reducing the property tax.
If you are age 65 or over and have resided in your home for at least two years, and your total income is not more than four times the Social Security supplemental security income benefit rate, you can apply to have the valuation of your primary residence and up to 10 acres of adjoining undeveloped land frozen for property tax purposes.
If you are age 65 or older, you could also claim a property tax credit on your Arizona state income tax return. If you are an Arizona resident the entire year and your total income is $3,750 or less if you are single, or $5,500 or less if married (amounts in effect for 2007) you could be eligible for a tax credit of up to $502.
Vehicles are subject to a vehicle license tax in Arizona. The assessed value of the vehicle is 60% of the manufacturer’s base retail price reduced by 16.25% each year since the vehicle was first registered in Arizona. The tax rate is $2.80 for each $100 of assessed value for new vehicles and $2.89 for used vehicles. For example, if you purchase a new vehicle for $20,000, the tax the first year would be $336 and the second year $290.45.
Arizona state income tax
Arizona has a state income tax with progressive rates starting at 2.59% on the first $10,000 of taxable income up to 4.54% on taxable income over $150,000. The rates for married taxpayers filing jointly and heads of households are the same, but the taxable income amounts are doubled. Personal exemptions for Arizona state income tax purposes range from $2,100 to $6,300, depending on your filing status and whether you have dependents. You can claim an additional $2,100 exemption if you are age 65 or over.
Social Security and railroad retirement benefits are exempt from the Arizona state income tax. You can exclude up to $2,500 in pensions from a federal government program or an Arizona state or local retirement program. Other types of retirement pay from other states would be taxable in Arizona.
Interest on U.S. Government obligations is not subject to the Arizona state income tax, but if you have interest on municipal bonds from other states you must add the interest to your taxable income for Arizona state income tax purposes. There is no special treatment for capital gains in Arizona – they are included in your Arizona gross income and taxed at your regular rate.
You can claim the standard deduction on your Arizona state income tax return or you can itemize deductions. The standard deduction for your Arizona tax return (in effect for 2007) is $4,373 for single or married taxpayers filing separately and $8,745 for married taxpayers filing jointly and heads of households. You can itemize deductions for Arizona state income tax purposes even if you claimed the standard deduction on your federal tax return. According to the Arizona Department of Revenue, in most cases you can deduct more medical expenses on your Arizona return than you can on your federal return.
Arizona sales tax
According to the Bankrate State Tax Roundup website, Arizona charges a state transaction privilege tax that is generally 6.3%. The state tax does not apply on food you purchase for consumption in your home or on drugs prescribed by a licensed physician or dentist. Counties and municipalities in Arizona also levy a tax, which is generally in the range of 1 to 3%. Some cities charge a tax on food. You can find a table showing the combined tax rates by county and city on the Arizona Department of Revenue website at www.azdor.gov under Transaction Privilege (Sales) Tax Rate Tables.
Estate and inheritance tax
The State of Arizona does not impose an estate, inheritance, or gift tax.
Gasoline and motor fuels tax
The tax on gasoline in Arizona is 19.0 cents a gallon, and the tax on diesel fuel is 28.0 cents a gallon.
About.com – Arizona Property Tax: http://phoenix.about.com
Arizona Department of Revenue – Property Tax: www.revenue.state.az.us
Arizona Tax Research Organization – An Explanation of Arizona Property Taxes: www.arizonatax.org
Bankrate – State Tax Roundup – Arizona: www.bankrate.com
Newsweek Showcase – Arizona Retirement: www.newsweekshowcase.com
Paul B. Bartlett, P.C. – Property tax relief for seniors in Arizona: www.tucsonelderlaw.com
Retirement Living Information Center – Taxes by State – Arizona: www.retirementliving.com