A new report showed Alabama is a very tax friendly state for retirees. Kiplingers.com's Guide to Taxes on Retirees examined state and local taxes to show which states were the best for retirees. According to the guide, here are some tax advantages for retirees in Alabama.
Sales tax is 4% statewide, but the rate can go as high as 12% depending on city and county taxes. Alabama is one of the few states that does not exempt food from sales taxes, but it does exempt prescription drugs.
Income tax ranges between 2 percent and 5 percent.
Most retirement income is exempt from state income taxes. The following retirement incomes are exempt: Social Security benefits and military, civil-service, and state and local government. All out-of-state government pensions and private pensions are tax-exempt if they are defined-benefit plans. Distributions from IRAs and employer-based defined contribution plans such as 401(k)s and 403(b) plans are taxable.
Property taxes are among the lowest in the nation. Each city and county may levy its own rate. Homeowners 65 and older are exempt from all state property taxes. A homestead exemption of up to $5,000 of assessed value is granted by the state on real property taxes. A larger exemption is available to people older than 65.
Alabama does not tax personal property such as boats and computers.
There is no inheritance tax and no estate tax.
State tax data courtesy Retirement Living Information Center. Visit RetirementLiving.com
for a complete rundown of taxes in Alabama.