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Is Arizona Tax-Friendly for Retirees?

According to Kiplinger.com, the answer is a resounding yes.

In fact, Arizona is ranked as one of Kiplinger’s Top Ten most tax-friendly states for retirees.

Let’s take a closer look at the reasons why.

Arizona State Sales Tax

Arizona’s state sales tax is 5.6%, but many counties and cities can add to that. The average combined sales tax rate comes out to about 8%. Arizona as a state does not tax food for home consumption, but most cities do. Of particular interest to many retirees, Arizona does not tax drugs prescribed by a licensed physician or dentist.

Arizona State Income Tax

While many popular retirement states (like Florida) have no state income tax, Arizona does, but it is considered fairly low, topping out at about 4.5%.

Social Security benefits are not taxed.

Arizona Property Taxes

The main thing people seem to be concerned about when choosing a place to retire is property taxes.

According to the Tax Foundation, the median property tax on Arizona’s median home value of $166,000 is a low $1,321, and it gets even better for seniors.

According to Kiplinger:

“Single homeowners and renters 65 and older who earn $3,750 or less and married couples who earn $5,500 or less are eligible for a property tax credit.

Homeowners who are at least 70 years old, have either lived in their primary residence for at least six years or have lived in the state for at least 10 years, and do not receive more than $10,000 of taxable income per year can defer their property taxes.

Homeowners who are at least 65 years old, have lived in their primary residence for at least two years and fall below certain income limits (for 2014, one owner of a property must have total income of $34,608 or less, and multiple owners of a property must have income of $43,260 or less) can apply to the assessor by September 1 to have the valuation of their property frozen for three years. The freeze can be renewed every third year.”

So there you have. I think we can agree that if you are considering retirement in Arizona, you should not let a fear of the potential tax burdens deter you.

For more information visit Kiplinger.com’s State-by-State Guide to Taxes on Retirees.

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