Choosing a Future Home? Don’t Ignore Locally Levied Taxes

Choosing a Future Home? Don’t Ignore Locally Levied Taxes
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By Vera Wilson

 

If we hear the word “taxes,” our mind usually jumps to those levied against our income. In most cases, income tax, both state and federal, takes up the lion’s share of the taxes we pay, so it’s not surprising these taxes are first and foremost in our mind. As a result, both active-duty personnel and veterans make it their (or their accountant’s!) business to know about any special tax treatment for combat pay or military retirement income, for example.

 

But often under our radar are locally imposed taxes like sales and property taxes which can take a serious bite out of anyone’s wallet. In recent years, while federal and some state income tax rates have seen decreases, many municipalities have increased their sales or property tax, or both. These taxes pay for schools, local roads and parks, and support services like fire, police, and zoning.

 

[RELATED: Tax Breaks Coming to Some Veterans, Surviving Spouses in These 3 States]

 

Enacted at the county level, property taxes and are calculated as a percentage of the value of your home. (Other property, like boats, may be taxed as well, and your car’s taxes are a totally separate matter). Rates vary widely by county, even within a state, but according to Wallethub.com, the average homeowner’s bill is $2,375 per year on a home worth $204,900 (the median home price).

 

The good news is, generous tax breaks or deferments are often made available to certain groups, such as disabled veterans, seniors, widowed military spouses, and low-income property owners. Some states honor all veterans by extending savings to them regardless of whether they have a service-connected disability, but it’s up to you to seek out the specifics of the programs offered and apply.

 

[RELATED: MOAA’s Military State Report Card and Tax Guide]

 

New Jersey is one state that provides such benefits, and it recently expanded them via a ballot initiative. A $250 property tax deduction that had applied only to veterans who served in wartime, and their surviving spouses, will apply to all veterans and surviving spouses as of Jan. 1. Also, a property tax exemption for 100% disabled veterans will be similarly extended to cover those who served during peacetime and their surviving spouses.   

 

“It has been nearly two decades since the state legislature provided honorably discharged wartime veterans a well-deserved property tax deduction,” said Col. Walter Nall, USA (Ret), acting Deputy Commissioner for Veterans Affairs, New Jersey Department of Military and Veterans Affairs. “But there was always the requirement of wartime service in order to qualify. Voters approving the amendment to the state constitution will allow thousands more veterans to be eligible.”

 

Sales Tax Tips

Sales taxes are levied at the state and local level. There are a handful of states that don’t charge any sales tax. But if given permission by their state government, municipalities—a city, town, county, or other district that’s been incorporated and has its own government—will impose sales taxes on most retail purchases. Local sales tax rates in some counties can add as much as 5% to the cost of an item. Couple that with a high state sales tax rate and it can really add up over time.

 

Thankfully, there are exceptions. Food is usually taxed at much lower rates, as are prescriptions, but others items like restaurant meals can incur higher rates.

 

Sales and property taxes are known as “regressive” since they don’t change as your income declines. It’s not uncommon for senior citizens, who may own their home outright, to move because their property taxes are too high for their fixed income.

 

The bottom line is locally levied taxes should not be overlooked when contemplating a move or putting together a family budget. Educate yourself on all the taxes you pay; don’t be lulled into thinking a state with a low income tax rate is the place to be if your local tax rates are so high, since it will negate any savings on your taxable income.

 

Refer to MOAA’s Military State Report Card and Tax Guide for information on local sales and property taxes.

 

Vera Wilson is freelance writer based in North Carolina. She frequently writes on financial topics.

 

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