Overview of New Mexico Retirement Tax Friendliness
New Mexico taxes all forms of retirement income, including Social Security, while offering a deduction to seniors with household income below a certain limit. New Mexico’s sales taxes are above average, but its property taxes are generally low.
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New Mexico Retirement Taxes
There are a lot of great reasons to retire in the Land of Enchantment. It has an arid climate with more than 250 days of sunshine per year. The cost of living in New Mexico is relatively low, with a median home value of $279,900. It also has nearly 400,000 acres of national park land and more than 10 million acres of national forest land.
On the other hand, retirement taxes in New Mexico may be relatively high for many retirees. The state taxes all forms of retirement income, including Social Security, while offering a deduction to seniors with household income below a certain limit. New Mexico’s sales taxes are also above average, but its property taxes are among the lowest in the U.S.
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Is New Mexico tax-friendly for retirees?
New Mexico is moderately tax-friendly for retirees. For seniors age 65 or older, there is an $8,000 deduction on retirement income if the household adjusted gross income (AGI) is less than $28,500 for single filers, $51,000 for married people filing jointly and $25,500 for married taxpayers filing separately.
New Mexico has some of the lowest property taxes in the U.S., with an median effective rate of 0.63%. Sales taxes are 7.096% on average, with the state rate at 4.875%. Groceries are exempt from sales tax, although prescription drugs and over-the-counter medications are subject to the statewide rate.
Is Social Security taxable in New Mexico?
Social Security retirement benefits are taxable in New Mexico, but they are also partially deductible. You won't pay any state income tax on your benefits if you earn less than $100,000 as a single filer or $150,000 as a joint filer.
Are other forms of retirement income taxable in New Mexico?
Retirement income from a pension or retirement account, such as an IRA or a 401(k), is taxable in New Mexico. As with Social Security, these forms of retirement income are deductible. Income in excess of the deduction, which is $8,000 for seniors, is taxed at New Mexico’s income tax rates. These range from 1.5% to 5.9%, as shown in the table above.
Seniors age 65 or older can also claim a refundable medical care credit of $2,800 if they have uncompensated medical care expenses of more than $28,000.
How high are property taxes in New Mexico?
New Mexico’s effective property tax rate is 0.63%, which is fairly low. The median annual property tax bill for homeowners is just $1,776. The median home value in the Land of Enchantment is $279,900, more than $80,000 less than the national median.
What is the New Mexico 65 or older value freeze?
Seniors in New Mexico with household income below a certain level can apply for a freeze on their home’s assessed value to limit annual increases in property taxes. The income limit is $42,900. Homeowners with modified gross income below that level are eligible for the freeze.
How high are sales taxes in New Mexico?
Technically, New Mexico does not have sales taxes. The state has a gross receipts tax, which is charged to the business and often passed on, in part or in full, to the consumer.
When comparing this gross receipts tax to the sales taxes in other states, New Mexico comes in slightly higher than average. The statewide rate is 4.875%, which ranks in the bottom half of all states. However, local governments collect additional taxes of their own and can be as high as 8.81%.
A number of exemptions help to limit the overall impact of the gross receipts tax on the budgets of seniors. Most groceries are exempt from the gross receipts tax (though prepared food is not exempt).
What other New Mexico taxes should I be concerned about?
If you are planning on supplementing your retirement income with earnings from investments, keep in mind that you will pay taxes on all capital gains. New Mexico does provide a deduction equal to 40% of all capital gains income or $1,000 of the net capital gains reported, whichever is larger.
New Mexico does not have an inheritance or estate tax.
