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What every retiree needs to know about Tennessee taxes

Golden eggs in birdPIN

When people relocate for economic reasons, they usually do so to either increase their revenue or decrease their costs. Before people retire, they typically focus on the revenue side of the picture. After they retire, the cost side of the equation becomes the most important.

Americans are subject to a myriad of taxes. Sales tax, car taxes, cigarette taxes, income tax, gift taxes, hotel taxes: the list is seemingly endless. For most retirees, the most important to focus on are income taxes and personal property taxes.

Tennessee income tax

There are only seven states in America that don’t collect income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two states only collect income tax on dividend and interest income: New Hampshire and Tennessee. Furthermore, in Tennessee people over 65 with total income less than $33,000 (single filer) or $59,000 (joint filer) are exempt. Moral of the story being: if you have a multi-million dollar investment portfolio, there are seven states with lower income taxes for retirees. If you and your spouse have an investment portfolio less than $3 million*, you cannot find a state with a lower income tax rate than Tennessee.

Tennessee property tax

Most homeowners know, all too well, that personal property taxes are assessed at the local, not the state level. The State of Tennessee has 412 counties that assess personal property taxes. Inside these counties, larger municipalities (Memphis, Gatlinburg, etc.) sometimes assess additional personal property taxes.  A few counties assess an additional Special School District (SSD) tax. Combining all of these, aggregate Tennessee tax rates range from a high of $7.7700 (Memphis, in Shelby County) to a low of $1.4975 (Cumberland County). White County, where The River Club is located, has the 14th lowest combined personal property tax rate in the state: it is only $1.8500 (SOURCE: Tennessee Comptroller of the Treasury 2014). To learn how much you will have to pay in personal property taxes if you buy a home in Tennessee, you can go to this website: TN Tax Calculator.

Cost of Living in Tennessee

Although it’s not a tax, it’s also important to look at a state’s cost of living. This measures the amount of money needed to sustain a certain level of living, and includes basic expenses such as housing, food, taxes, and healthcare. According to the Missouri Economic Research and Information Center, in the first quarter of 2015 Tennessee had a combined cost of living index of 90.4, which was the sixth lowest in the United States. The lowest was Mississippi, with an index of 83.7, while Hawaii was the highest with an index of 170.8

Summing it up

I’ve hit the major points individually, but I always like a nice punchline. And Tennessee definitely has one. According to the Dow Jones & Co. site Market Watch, Tennessee was ranked the #1 Tax Friendly State for Retirees in 2015. This is why we think Tennessee is the best kept secret for retirees. Even better, it also has stunning natural beauty, world class golfing, amazing music (Country in Nashville and the Blues in Memphis) and vibrant cities. Tennessee: it deserves a closer look!

*I arrived at this number by assuming a $3 million portfolio is invested in an S&P index. If this is the case, with an average dividend yield of 2%, you’d earn roughly $60,000 a year in dividend income.

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