7 Financial Advantages of Retiring in Florida
It's no secret that Florida is one of the best states in the country to retire to. After all, the state has a lot to offer retirees: beautiful weather, plenty of activities and amenities, and friendly locals. But fun-filled days aren’t the only thing to look for in a retirement destination. Are there also monetary perks to the best places to retire in Florida? Keep reading to learn the top seven financial benefits of retiring in Florida.
No State Income Tax (Including Social Security)
One of Florida's most significant tax advantages is the lack of income tax. This is a considerable advantage for retirees, even though most aren't working full-time. The fewer taxes that come out of your pension distributions or passive income checks are money in your budget.
The state-level income tax laws in Florida apply to every form of income, including Social Security benefits. States including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Vermont, Utah, and West Virginia all tax Social Security benefits in addition to what's taken out at the federal level.
The federal tax rate for social security benefits is 50% per person with an income of up to $25,000 or $34,000 for households filing jointly. Individuals earning more than $34,000 and couples earning more than $44,000 are taxed 85% of their social security benefits. Several of the states listed above will take as much as 5.7% more for state-level social security taxes.
Florida also withholds from taxing pension payouts. This means that 401(k)s and IRAs will stretch further in The Sunshine State than they will elsewhere. Florida is one of only 12 states that don't levy a tax on 401(k) and IRA pension distributions.
Dual Threat: No Income Tax Paired With No Estate Tax
The Florida retirement tax advantages don't stop with income. Florida is also one of the only states that don't have an estate tax. The only other states to offer this unique dual tax benefit are:
- New Hampshire
- South Dakota
A lack of estate tax means that the money people leave behind after they pass away is not taxed by the state. This is a considerable advantage, especially when compared to states like California and New York, which have an estate tax rate of 16% and 18%, respectively.
In addition, there is also no gift tax in Florida. So, people who want to leave money or assets to friends, family members, or influential organizations can do so without worrying about additional taxes.
The most significant benefit of withholding estate taxes is that it encourages retirees to continue saving. Of course, people should enjoy their golden years and not live on a restrictive budget, but many retirees also want to continue nurturing their assets to help boost the people closest to them.
Lower Sales/Property Taxes Than Other No-Income-Tax States
Many states with generous tax advantages for retirees make up for it somehow. For example, Tennessee has no income tax, but it levies one of the country's top three highest sales taxes.
Florida has lower sales taxes than several other states in the no-income-tax category. Here's a look at the sales tax rates in other states with no income taxes.
- Washington: 6.5%
- Nevada: 6.85%
- Tennessee: 7%
People often debate whether Florida or Texas is more tax-friendly for retirees. When it comes to sales tax, Florida has the 6.25% rate found in all the best Texas cities for retirement.
When it comes to retirement, sales taxes can add up quickly. They're the hardest taxes to minimize since they're charged at a flat rate with every purchase a resident makes. Sales taxes apply to essential items like medicine and groceries.
Florida retirees also reap the benefits of slightly lower-than-average property taxes. The average effective property tax rate in the state is .83%, although the official property tax rates vary for each Florida County. A retired person who owned a home valued at $250,000 would own around $2,000 per year in effective property taxes. The national average effective property tax rate is 1.07%.
Florida Homestead Exemption Reduces Taxable Income
Florida offers its residents a generous homestead exemption. Exemptions save taxpayers money by reducing property assessments.
The Florida Homestead Property Tax Exemption is available to all Florida residents — not just those of retirement age. This plan allows people to remove $25,000 from the first $50,000 of a primary residence that they owned starting on January 1 of that tax year. An additional $25,000 deduction is available to those with homes valued between $50,000 and $75,000. That means retirees who purchased a home for $75,000 could potentially only pay taxes on $25,000 instead of the full value.
From there, the state offers additional property tax exemptions for seniors. In certain Florida counties, low-income homeowners who are 65 or older can qualify to have an additional $25,000 to $50,000 removed from their property's assessed value as long as they meet the criteria listed above. Most recently, the income cap for this additional exemption was set for $31,100 per year, but the amount is expected to increase due to inflation and cost of living increases.
Florida Vacation Homes Fund Florida Retirements
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.
First, the mortgage interest on a second home can be tax-deductible. The mortgage interest deduction allows homeowners to reduce their taxable income by counting the interest they pay every month. As long as the limits and restrictions are followed, these rules can apply to vacation home mortgages.
You can also write off most of the costs of owning and maintaining your vacation home. This includes repairs, property taxes, and capital gains. If you decide to operate your vacation home as a short-term rental, you can also write off the property management expenses.
These tax advantages apply to homeowners all over the country, though. What makes Florida so unique?
Many cities in Florida are highly desirable vacation destinations. The warmer year-round weather creates consistent demand for people who want to rent a comfortable space in the Sunshine State.
For retirees, the appeal of owning a short-term rental in Florida is that they can make significant profits by renting it out during peak seasons in the summer. Then, during the winter, they can enjoy the mild Florida weather in their own home.
Beachfront Living For Less Than the National Average Cost of Living
One of the best financial advantages of retiring in Florida is that living costs are lower than most beach-centric communities.
Waterfront lifestyles are a big draw for people looking for a place to retire, and the limited availability demand drives up prices. However, many waterfront cities in Florida have a cost of living that is well below the national average.
Take Fort Walton Beach, for example. The cost of living on an index in which 100 represents the national average, Fort Walton Beach scores 92.3.
People who retire in a town like Fort Walton Beach enjoy convenient access, across the Miracle Strip Bridge, to sugar-white sand and rolling emerald waves.
Additionally, Fort Walton locals can find a robust selection of waterfront homes on the sound equipped with boating docks, fishing piers, and more.
The amenity-rich lifestyle found in 55+ communities across Florida comes at a significantly lower price than any other state in the country. From professional-grade golf courses to outstanding outdoor recreation areas, Florida has all the amenities retirees could want without the over-the-top prices.
Florida Opportunity Zones Promote Growth & Savings
One of the most recent financial advantages of retiring in Florida is a brand-new program called Opportunity Zones.
This federal tax incentive was created as part of the Tax Cuts and Jobs Act of 2017 and has already invested billions of dollars into revitalizing communities.
An Opportunity Zone is an area that has been nominated by the state and approved by the U.S. Treasury Department for stimulus through private sources.
If you invest in a qualified Opportunity Zone Fund, you can defer or eliminate your capital gains taxes on any profits made from the sale of an asset.
The best part? There's no limit to how much you can invest.
Florida has 253 Opportunity Zones, making it one of the best states in the country for taking advantage of this tax incentive.
Reap The Financial Benefits of a Florida Retirement
If you're looking for a place to retire that offers significant financial advantages, look no further than Florida. The state has no income tax and low property taxes. In addition, the Florida homestead exemption protects homeowners' assets from being taxed upon death, and the statewide cost of living is cheaper than average. Finally, if you're looking to invest your money in a way that offers tax breaks and potential growth, consider one of Florida's opportunity zones. With all these benefits available to retirees, a Florida retirement is tough to resist.