Texas is a popular retirement destination for many reasons, including its warm climate, affordable cost of living, and lack of a state income tax.

But it is important to understand the other taxes retirees may face. 

In a recent interview, Ryan Firth, founder of Mercer Street Company and a member of the AICPA’s PFP Champions Task Force, described how property taxes and sales taxes remain meaningful costs.

Below is a transcript of that interview, edited for clarity and brevity.

Texas is a popular retirement destination.

Unsplash

Property taxes in Texas

Robert Powell: Let’s start with the taxes people do pay in Texas, beginning with property taxes.

Ryan Firth: Property taxes are a major component. In Texas, your primary residence is assessed based on the value of the home, including the land and improvements. A significant portion of those taxes, often about half, goes to fund public schools. The remainder supports city and municipal services.

For homeowners age 65 and older, there is a property tax value freeze, which can be helpful for those who want to age in place. There is also some relief on the school tax portion. As a result, property taxes for seniors can be somewhat lower. For others, property taxes can be substantial. Depending on the municipality, rates often run around 2% to 3% of the home’s assessed value.

Related: Medicare mistakes seniors wish they’d known sooner

Powell: For people planning to age in place, that senior freeze can be meaningful relief. What about the homestead exemption?

Firth: That’s an important point. Texas offers a homestead exemption for a primary residence. It reduces the taxable value of the home and provides additional relief on property taxes. Homeowners need to apply for it, but once in place, it lowers the overall tax burden.

SALT deduction considerations

Powell: Our focus is on state taxes, but the SALT deduction is relevant here. Is that something seniors should understand?

Firth: Yes. SALT stands for state and local taxes, which are deductible at the federal level. Under current law, the deduction limit ranges from $10,000 up to $40,000. This expanded limit came from H.R. 1 and applies starting with the 2025 tax year.

For someone filing now for 2025, it means property taxes can potentially be deducted up to $40,000, provided income is below the phaseout threshold. The phaseout begins at a modified adjusted gross income of $500,000 and fully phases out above $600,000.

Sales taxes and everyday costs

Powell: Another tax Texans need to consider is sales tax. The state rate is 6.25%.

Firth: That’s correct. The state sales tax is 6.25%, and cities and counties can add up to another 2%. In places like Houston, shoppers often pay around 8.25% on taxable goods.

Some items are exempt. Groceries, for example, are generally not subject to sales tax. Still, for retirees on a fixed income, sales taxes can add up.

Also worth reading

  • Retirees may want to rebalance as markets broaden, volatility rises
  • Why “breaking even” on Social Security is the wrong goal
  • The $83,250 secret every solo entrepreneur needs to know for 2026

Powell: You’ve suggested retirees look for ways to reduce that burden.

Firth: Yes. Some retailers offer senior discounts, which can help offset sales taxes. Texas also has tax-free shopping days, such as sales tax holidays for school supplies, and there are certain senior-focused exemptions or discount days depending on the retailer.

No state income tax

Powell: To be clear, Texas does not tax income. That includes Social Security benefits, required minimum distributions, retirement account withdrawals, dividends, capital gains and interest income.

Firth: That’s right. Texas has no state income tax, so all of those income sources are free from state income taxation.

Powell: That certainly makes Texas appealing.

Firth: It does. Aside from summer heat in some areas, Texas can be attractive for retirees looking for a relatively low-cost place to live.

Related: Layoff health insurance mistake costs $10,000 yearly