Welcome to the Sunshine State, where seniors are soaking up the warm weather, pristine beaches, and endless golf courses. Florida is not only famous for its tropical lifestyle, but also for its favorable tax system. Here’s what you can expect.
An estimated 21.1% of Florida’s population is over 65 years old, one of the highest percentages in the United States. In its annual ranking of the best places to retire in 2021 and 2022, U.S. News listed eight Florida cities in the top 10 places to retire, with Sarasota, Naples, Daytona Beach, and Melbourne sweeping the top four spots. It’s no wonder retirees are flocking to this sunny destination.
If you’re considering Florida as a retirement destination, it’s essential to understand the state’s tax system and how it can impact your retirement savings.
In this blog, we’ll take a closer look at Florida’s tax laws, as well as other factors to consider before making your final decision on where to spend your golden years.
Is Florida Tax-Friendly for Retirees?
Florida’s tax system continues to make it an attractive retirement destination for seniors across the United States. With no state income tax, retirees can enjoy tax-free income from Social Security, pension income, and income from an IRA or 401(k). This alone can result in thousands of dollars in tax savings compared to other states.
In addition to the lack of income tax, Florida also has no estate or inheritance tax, making it an excellent option for seniors looking to leave assets to their loved ones. This favorable tax system allows retirees to make the most of their retirement savings and enjoy a comfortable lifestyle without worrying about excessive taxation.
Is Retirement Income Taxable in Florida?
Florida’s tax-friendly policies continue to attract retirees from all over the country, and for good reason. The fact that the state has no income tax means it doesn’t have state taxes on Social Security benefits, and there is no state income tax, which means that all earnings, whether from wages, pensions, or retirement accounts, are tax-free at the state level.
This favorable tax system can result in substantial tax savings for retirees, allowing them to enjoy a higher standard of living. Even if you have an IRA or 401(k) with accumulated savings from income earned in another state, if you move to Florida, your withdrawals will not be taxed.
How High is Florida’s Property Tax?
Property taxes are a significant source of revenue for local governments in Florida, but they are not excessively high compared to other states. Florida’s average property tax rate is 0.98%, which is slightly lower than the U.S. average of 1.08%. The average Florida homeowner pays $1,752 each year in real property taxes.
The property tax money collected by Florida is used for multiple public services throughout the state. It could be used for:
- First responders and other law enforcement
- General government services
- Local levies
- Municipal infrastructure and land construction or improvements
- Municipal employees’ pay
- Resident services like garbage pickup
- Recreational services
- Protective services
It’s essential to note that housing costs can vary significantly depending on the location in Florida. For example, in areas like Miami, housing costs are much higher than other parts of the state.
According to tax-rates.org, Miami-Dade County collects the highest property tax in Florida, levying an average of $2,756.00 (1.02% of median home value) yearly in property taxes, while Dixie County has the lowest property tax in the state, collecting an average tax of $503.00 (0.51% of median home value) per year.
In order for seniors to stretch their retirement dollars on housing, it’s crucial to research different areas and consider their budget before making a decision on where to retire in Florida.
What is Florida’s Homestead Exemption?
All legal Florida residents are eligible for a Homestead Exemption on their homes, condominiums, co-op apartments, and certain mobile home lots if they qualify. Florida homeowners can apply for the homestead exemption, which is a tax break applied to their primary residence. This exemption allows $25,000 of a home’s assessed value to be exempt from property taxes. For non-school property taxes, an additional exemption of $25,000 can be applied to a home’s assessed value between $50,000 and $75,000.
Not only does the homestead exemption lower the value on which you pay taxes, it also triggers the ‘Save Our Homes’ benefit which limits future annual increases in assessed value to 3% or less. The sale of the property, changes in ownership or changes to the property can cause the exemption and benefit to be removed or altered. (When a home is sold, the assessed value increases to market value for the next tax roll.)
Cost of Living
In addition to tax-free incentives, Florida’s cost of living is also relatively low compared to other retirement destinations. Making it an affordable option for seniors looking to stretch their retirement savings.
Furthermore, many real estate investments can help you get the most out of your retirement in Florida. Owning a vacation home comes with various tax advantages and opportunities for passive income that can fund your retirement.
What’s so great about Florida? Beyond its much-touted great weather, it’s affordable and it offers a high quality of life.
Are you considering retiring in the Sunshine State and unsure where to start? Tax planning is an integral component of your comprehensive retirement plan.
At APO Financial, our focus is on providing a thorough analysis of all relevant accounts to determine viable strategies for reducing taxation, ensuring that our clients retain a maximum portion of their funds. Our highly experienced Retirement income advisors in Florida Palm Beach Gardens are ready to guide you through the intricacies of Florida’s tax laws.
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