Texas offers a tremendous number of choices for potential retirees in terms of life style, activities, climate and rural or urban environments. The cost of living varies widely depending on your choice of location, but one component of your costs in Texas – state and local taxes – are one of the lowest in the country.
Texas has no state income tax and therefore, retirement income is not subject to state tax. There are state and local sales taxes and property taxes may be high compared to other parts of the country, but the overall tax rate is still very low. According to the Tax Foundation, Texas ranks 43rd among all the states in total state and local taxes per capita, with an overall average rate of 8.4% of income, compared to a national average of 9.7%.
Texas property taxes
Texas has no state property tax. Property taxes are levied by local taxing units including counties, cities, school districts and municipal utility districts. Taxes are assessed on all real property and on income-producing tangible personal property that is not specifically exempt. Personal property such as automobiles, boats and travel trailers that do not produce income is mostly exempt from property tax.
According to Jill Wente & Company, Realtors, the combined property tax rate ranges from $2.1 to $4.2 per every $100 of assessed value. The school district and municipal utility district taxes combined can represent from 50% to 80% of the total tax rate. You can look up the property taxes by county on the Texas Comptroller of Public Accounts website. This will show you the tax rates by each individual taxing unit in that county.
Homeowners in Texas are entitled to general and special homestead exemptions. There is a state-mandated exemption of at least $15,000 in the assessed value for purposes of the school district property tax. Taxing units can offer a separate exemption of up to 20% of the total value. You can claim a general homestead exemption for your principal residence, which can be a separate structure, condominium or manufactured home located on land you own or lease, as long as you own the home. Your homestead can include up to 20 acres if you own the land and use it for residential purposes.
Homeowners who are age 65 or older and/or disabled can qualify for a $10,000 exemption for school district taxes, in addition to the general $15,000 exemption, and a $3,000 exemption from other local taxes. Once you qualify for the exemption for being age 65 or older, or disabled, school district taxes are frozen. There is a tax ceiling on your home and the assessed value cannot increase as long as you own and live in the home. The tax ceiling is the amount you pay in the year that you qualified for the exemption for being age 65 or older or disabled. The school taxes on your home can go below the ceiling but not above it. If you make additions or improvements, other than normal repairs or maintenance, the tax ceiling is adjusted for the assessed value of the additions or improvements. Other taxing units are permitted to establish a tax freeze on your home when you are age 65 or older or disabled.
Texas sales tax
Texas has a 6.25% sales tax and according to Bankrate, local sales and use taxes charged by cities, counties, transit and special purpose districts can add an additional 2%, bringing the total sales tax up to 8.25%. You can look up the total state and local sales tax by city and county on the Texas Comptroller of Public Accounts website. Food, prescription and non-prescription drugs are generally exempt from sales tax.
Estate and inheritance tax
There is no inheritance tax in Texas. The Texas estate tax is limited to the amount of the state death credit allowed on the federal estate tax return. The federal estate tax is repealed for 2010, but the repeal is temporary and expires on December 31, 2010. Depending on any federal legislation passed, the federal estate tax will take effect again in 2011 and that could affect the Texas estate tax.
Gasoline and motor fuels tax
In Texas, the state fuel excise tax on gasoline and diesel fuel is $0.20 a gallon.
“Exemptions” – Texas Comptroller of Public Accounts
Jill Wente & Company, Realtors – “Texas Property Taxes: why are they so High!”
Jill Wente & Company, Realtors – “Texas ranks #8 lowest state in state-local tax burden”
State Tax Roundup – Texas – Bankrate.com
Taxes by State – Texas – Retirement Living Information Center
“Texas’ State and Local Tax Burden, 1997 – 2008” – Tax Foundation