Retirees Drawn to New Hampshire’s No-Income-Tax Policy Often Discover the Property Tax Comes First

New Hampshire’s lack of an income tax draws retirees from Massachusetts every year, but many are surprised by the property tax bill that shows up at closing. For some households, whether the move is financially worthwhile depends on a single ratio.

Some retirees in Massachusetts and New York are attracted to New Hampshire because the state does not tax retirement income. IRS migration data for the recent period shows Massachusetts was the largest source of new residents, with 10,603 tax returns moving into the state.

Not having a state income tax is a major advantage, but property taxes can be higher than many buyers anticipate. The discussion below looks at what New Hampshire taxes, why property bills are so large, what relief programs exist, and who ultimately comes out ahead.

How New Hampshire Raises Revenue Instead

New Hampshire does not tax wages or salaries, and the Tax Foundation says the state’s old tax on interest and dividends has been repealed. It also has no state sales tax and no estate or inheritance tax, so IRA withdrawals, pensions, dividends, and Social Security are not subject to state income tax.

That revenue has to come from somewhere, and in New Hampshire it is largely property tax. Property taxes account for 59.5% of combined state and local tax revenue, and the effective rate on owner-occupied homes is 1.50% of home value. The Tax Foundation notes that states such as New Hampshire and Texas rely heavily on property taxes instead of other major tax categories, shifting more of the burden to local governments.

Schools take a large share of that funding. According to the New Hampshire Fiscal Policy Institute, nearly two out of every three dollars used for public school funding comes from local property taxes.

Massachusetts uses a different mix, with a flat 5.00% income tax, a 6.25% sales tax, and a 1.00% effective property tax rate. A Massachusetts CPA firm’s summary also says the state excludes Social Security from taxation at the state level.

Home Prices Have Helped Push Bills Higher

Over five years, the federal home price index climbed 52.37% in Manchester-Nashua and 53.51% in Rockingham-Strafford. When home values rise, assessments usually catch up eventually. Tax rates also vary widely by town, from under $6 per $1,000 of assessed value in some communities to more than $27 per $1,000 in others.

That means two homes with the same market price can still produce very different tax bills. As The Wall Street Journal put it, “While state income-tax burdens might shrink, property taxes can jump, or vice versa.”

Comparing New Hampshire and Massachusetts

The comparison here focuses on retirement households living on Social Security plus taxable IRA or pension income. It applies the Tax Foundation’s statewide effective property tax rates to market value and uses Massachusetts’ 5% income tax on all taxable income, without including the state’s small exemptions. Federal tax is excluded because it would be the same in both states, and sales tax is also left out, which makes Massachusetts look slightly cheaper than it would in a full comparison.

In the first example, the couple saves about $2,500 a year by living in New Hampshire. In the second, the couple pays about $1,500 more. At average rates, the break-even point is roughly a home value equal to 10 times taxable income. Using a 4% withdrawal rate, $2,500 in yearly savings is equivalent to about $62,500 in portfolio value. A $1,500 annual extra cost requires about $37,500 in portfolio value to offset, and that burden grows as assessments rise.

Limited Tax Relief Is Available

New Hampshire towns can offer a senior exemption under RSA 72:39-a, but each municipality sets its own amounts and eligibility rules. One town’s application, for instance, reduces assessed value by $50,000 for owners age 80 and older.

That same example limits income to $28,000 for a single owner and $53,000 for a married couple, while capping assets at $100,000 for a single owner. Other towns use different thresholds.

The state also offers the Low and Moderate Income Homeowners Property Tax Relief program, which sets income limits of $37,000 for a single person and $47,000 for a household.

The NHFPI cited an example in which a qualifying couple received a rebate of $162.36, while average household property taxes were about $7,470 in 2021. These income limits are not automatically adjusted for inflation, so retirees above the income or asset thresholds do not qualify for either program.

The Key Question for Retirees

For retirees with substantial pension or IRA income and a relatively modest home, New Hampshire often comes out ahead. For retirees with an expensive home and limited taxable income, it often does not. Some residents also move the other way; in the same IRS data, 2,696 tax returns moved from New Hampshire to Florida.

The move generally works best when a home’s value stays below about 10 times a couple’s taxable retirement income. It also works when a portfolio can absorb a property tax bill that rises with assessments while still supporting a 4% withdrawal rate. A couple drawing $100,000 a year from savings and buying a $500,000 house fits that profile.

A couple drawing $40,000 a year and buying a $700,000 house falls outside it, although a less expensive house or a lower-tax town would change the calculation. The statewide 1.50% average is only a starting point, because local tax rates range from under $6 to more than $27 per $1,000 of assessed value, and that town-level difference can determine the final outcome.