Tax Benefits of States of Residency: Active Duty and Retired

We’ve talked before about the benefits of the Servicemember’s Civil Relief Act of 2003 and what it does for active duty service members in terms of lowering interest rates, reducing credit card fees, and providing other benefits to those on active duty status. One often overlooked aspect is the ability to establish a state of legal residence in a state that is beneficial from a tax perspective. This is different from your home of record, which is the location from which you entered the military.

While I highly recommend you consult the legal office prior to doing so, establishing a new state of legal residency is as simple as submitting a form to the finance office. However, one should consider establishing presence in the state by filing taxes from their state of legal residency (SLR), owning a home there, registering a car there, or registering to vote there. Whether you are active duty or retired, however, there are 9 states you should consider making your SLR or settling down in based on the fact that income is not taxable. It could save you up to 9.9% of your taxable income.

Alaska: A great location from a tax perspective if you’re ever stationed there. In addition to no income tax, citizens receive an annual payment from the Alaska permanent fund corp. To remain eligible for this payment, a person must have spent at least 30 cumulative days there in the last five years, which means the vacation pays for itself at $3,000 a year in payouts. Additionally, disabled veterans are eligible for property tax exemptions of up to $150,000 if over 50% disabled.

Florida: A great state to live in and retire in given weather and cost of living, Florida does not levy a state income tax on active duty or retirement pay. If more than 10% disabled as a veteran, you receive a $5,000 property tax exemption which increases to a full exemption at 100% disability.

Nevada: The state does not charge income tax, but makes up for it with a variety of other taxes that could make cost of living expensive. Veterans disabled above 60% may receive up to a $20,000 tax exemption on property.

New Hampshire: The state does not tax income but currently taxes dividends and interest ( legislation will end this in 2025). Disabled veterans will receive full property tax exemptions if they are 100% disabled.

South Dakota: The state charges no income tax and gives a property tax exemption of up to $100,000 for those veterans who are 100% disabled.

Tennessee: The state currently taxes income from investments but legislation is in place to cease this in 2021. A disabled veteran in Tennessee may receive a property tax exemption of up to the first $100,000 of his or her primary residence if the veteran is 100 percent disabled and his or her income does not exceed $60,000.

Texas: Texas forbids state income tax in its Constitution and provides a property tax exemption of up to $12,000 for disabled veterans, increasing to full exemption at 100% disability.

Washington: The state does not levy a state income tax and offers a full exemption on property taxes to those who are 100% disabled dependent upon the veteran’s income.

Wyoming: This rural state offers no income tax and a property exemption of $3,000 if the veteran was disabled as a result of service.

While these 9 states are beneficial from a tax perspective, a number of other economic factors are worthy of consideration when departing service to include veteran unemployment rate, overall cost of living, and additional benefits not mentioned here. I strongly encourage you to do your research prior to changing your SLR or retiring in a given state.$

Think you’re missing out on a property tax exemption on your home? Check here to see what your state offers and contact your states Veteran’s Affairs Office.

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Any accounting, business or tax advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.