Category First Time Home Buyers

What to Do If Your Stimulus Check is Lost, Stolen or Destroyed

It’s bad enough if a new sweater you ordered on Amazon gets lost in the mail – but you’re really going to get mad if the post office loses your $600 stimulus check. What do you do then? Or what happens if your bank never receives your direct deposit stimulus payment from the IRS? Are you going to lose that money?

Fortunately, the IRS has a procedure to help. If your first-round ($1,200) or second-round ($600) stimulus payment is lost, stolen or destroyed, you can ask the IRS to perform a “payment trace” to see if your payment was cashed. In fact, you may need to request a trace in order to eventually get paid (assuming you’re eligible for a stimulus check). That’s the good news.

But there’s some less than thrilling news, too. First, whether or not your check was cashed, the IRS won’t reissue your payment. Instead, you’ll have to claim the amount you’re owed as a “recovery rebate” credit on your 2020 tax return, which means you won’t get your stimulus check money right away. Second, as with any government request, there’s a healthy list of procedures you must follow. Slip up on one of the steps, and you could find yourself in a bureaucratic black hole. But don’t worry. While dealing with the IRS can be intimidating, we’ll help you get through the process.

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Who Can Request a Payment Trace

You can track the status of your stimulus check using the IRS’s “Get My Payment” portal. If you’re getting a stimulus payment, this online tool will let you know how it will be delivered (e.g., paper check or direct deposit) and provide an estimated arrival date.

Also, after it processes your stimulus payment, the IRS will mail you a letter letting you know that a payment was sent to you. The letter is formally known as Notice 1444 for first-round stimulus checks and Notice 1444-B for second-round payments.

You can request a payment trace only if you haven’t received your stimulus payment and you:

  • Get an IRS letter (Notice 1444 or 1444-B); or
  • The “Get My Payment” tool shows your payment was issued.

Don’t request a payment trace to determine if you’re eligible for a payment or to confirm the amount of money you should have received.

When to Request a Payment Trace

If the “Get My Payment” tool or your Notice 1444/1444-B says that your payment was issued as a direct deposit into your bank account, you should first check with your bank before submitting a payment trace request to make sure they didn’t get a deposit. But wait at least five days after the estimated delivery date. Otherwise, the bank might not have the necessary information.

If you were scheduled to get a first-round paper stimulus check in the mail, the IRS can’t initiate a payment trace unless it has been:

  • Four weeks since the check was mailed to a standard address;
  • Six weeks since the check was mailed if you have a forwarding address on file with the local post office; or
  • Nine weeks since the check was mailed to a foreign address.

For second-round payments, a payment trace isn’t allowed until:

  • February 24, 2021, if the check was mailed to a standard address;
  • March 10, 2021, if the check was mailed if you have a forwarding address on file with the local post office; or
  • March 31, 2021, if the check was mailed to a foreign address.

(Note: If you have a foreign address, there may be international service disruptions at the U.S. Postal Service or the foreign country you’re in due to the COVID-19 pandemic. See the USPS Service Alerts website and check with your local consulate for more information.)

How to Request a Payment Trace

There are two ways to request a stimulus payment trace:

  • Call the IRS at 800-919-9835; or
  • Mail or fax a completed Form 3911 to the IRS.

Pick only one method (e.g., don’t submit Form 3911 if you have already requested a trace by phone). Also remember that you can’t request a payment trace before the timeframes described above – the IRS can’t process a request until after the appropriate time period has passed.

If you’re using Form 3911, make sure you:

  • Write “EIP1” (first-round payment) or “EIP2” (second-round payment) on the top of the form to identify which payment you want to trace;
  • Complete the form answering all refund questions as they relate to your stimulus payment;
  • When completing item 7 under Section 1, check the box for “Individual” as the type of return, enter “2020” as the tax period, and don’t write anything for the date filed; and
  • Sign the form (if you file a joint tax return, both spouses must sign the form).

Mail or fax the form to the appropriate address or fax number according to the chart below. Don’t send anything other than a Form 3911 to the fax numbers listed.

If you live in… then mail to this address… or fax to…
Maine, Maryland, Massachusetts, New Hampshire, Vermont Andover Internal Revenue Service
310 Lowell St.
Andover, MA 01810
855-253-3175
Georgia, Iowa, Kansas, Kentucky, Virginia Atlanta Internal Revenue Service
4800 Buford Hwy
Chamblee, GA 30341
855-275-8620
Florida, Louisiana, Mississippi, Oklahoma, Texas Austin Internal Revenue Service
3651 S Interregional Hwy 35
Austin, TX 78741
855-203-7538
New York Brookhaven Internal Revenue Service
1040 Waverly Ave.
Holtsville, NY 11742
855-297-7736
Alaska, Arizona, California, Colorado, Hawaii, Nevada, New Mexico, Oregon, Utah, Washington, Wisconsin, Wyoming Fresno Internal Revenue Service
5045 E Butler Avenue
Fresno, CA 93888
855-332-3068
Arkansas, Connecticut, Delaware, Indiana, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, Ohio, West Virginia Kansas City Internal Revenue Service
333 W Pershing Rd.
Kansas City, MO 64108
855-344-9993
Alabama, North Carolina, North Dakota, South Carolina, South Dakota, Tennessee Memphis Internal Revenue Service
5333 Getwell Rd.
Memphis, TN 38118
855-580-4749
District of Columbia, Idaho, Illinois, Pennsylvania, Rhode Island Philadelphia Internal Revenue Service
2970 Market St.
Philadelphia, PA 19104
855-404-9091
A foreign country, U.S. possession or territory, or use an APO or FPO address, or file Form 2555 or 4563, or are a dual-status alien. Austin Internal Revenue Service
3651 S Interregional Hwy 35
Austin, TX 78741
855-203-7538

What the IRS Will Do

You’ll generally receive a response about six weeks after the IRS receives your request for a payment trace (there could be delays due to limited IRS staffing). They will process your claim for a missing payment in one of two ways. If the check was not cashed, the IRS will reverse your payment. They’ll send you a notice, too. If the original check shows up later, you need to return it as soon as possible. You will then need to claim the “recovery rebate” credit on your 2020 tax return to receive your payment (assuming you’re eligible for the credit).

If the check was cashed, the U.S. Bureau of the Fiscal Service will send you a claim package that includes a copy of the cashed check. Follow the instructions in the packet. The bureau will review your claim and the signature on the canceled check before determining whether the payment can be reversed. If it is reversed, you will need to claim the “recovery rebate” credit on your 2020 return to get your money.

It’s very important that you submit a payment trace request as outlined above. Since the payment was issued to you, you could be deemed ineligible for the “recovery rebate” credit if you don’t request a trace.

Also, if you’re filing your 2020 tax return before your payment trace is complete, don’t include the payment amount on line 16 or 19 of the Recovery Rebate Credit Worksheet (the worksheet is in the instructions for Form 1040). You may receive a notice saying your recovery rebate credit was changed, but an adjustment will be made after the trace is complete and it’s determined your payment hasn’t been cashed. In that case, you won’t need to take any additional action to receive the credit.

Source: kiplinger.com

The 10 Least Tax-Friendly States for Middle-Class Families

It’s bad enough when Uncle Sam hits you with a big tax bill. But you really go through the roof when your state, county, or city follows that up by taking another huge chunk of your hard-earned cash. That’s why people who are contemplating a move from one state to another need to do their homework before hiring a moving company. If you can help it, you don’t want to end up in a state with higher taxes than the one you’re in right now.

Moving from a low-tax state to a high-tax state can literally cost you thousands of dollars each year. If you want to prevent this, you need to know which states to avoid. And we can help with that.

To build our State-by-State Guide to Taxes on Middle-Class Families, Kiplinger editors estimated the overall income, sales, and property tax burden in each state for a hypothetical married couple with two children, combined wages of $77,000, $3,000 of other income, and a $300,000 home. That also allowed us to create the following list of the 10 least tax-friendly states for middle-class families (the least-friendly state is listed last). If you and your family are thinking of relocating to another state, make sure you check out the list first. It might make you think twice before packing your bags.

See the final slide for a complete description of our ranking methodology and sources of information.

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10. Michigan

picture of Michigan with state nicknamepicture of Michigan with state nickname
  • State Income Tax Range: 4.25% (flat rate)
  • Average Combined State and Local Sales Tax Rate: 6%
  • Median Property Tax Rate: $1,448 per $100,000 of assessed home value

Good news first: sales taxes are below average in the Great Lakes State. There’s a 6% state tax on purchases in Michigan, which is right around the mid-point as far as state-level sales tax rates go. But local governments don’t add any additional tax on sales in the state. So, shoppers in Michigan can feel pretty good about the overall state and local sales tax burden on them.

But things go downhill from there. The 4.25% flat rate is higher than what you’ll find on middle-class families in most other states. Plus, cities can levy additional local income taxes. As a result, Michigan’s income tax bill for our hypothetical family is above the national average. Not by much, but the extra tax burden is enough to nudge the state in the wrong direction.

And there’s more bad news when we look at property taxes in Michigan. For a home worth $300,000, the estimated annual property tax in Michigan is $4,344. That property tax amount is well over the national average and pushes Michigan onto this list of the least tax-friendly states for middle-class families.

For more information on these and other Michigan state taxes, see the Michigan State Tax Guide for Middle-Class Families.

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9. Nebraska

picture of Nebraska with state nicknamepicture of Nebraska with state nickname
  • State Income Tax Range: 2.46% (on taxable income up to $3,290 for single filers; up to $6,570 for joint filers) to 6.84% (on taxable income over $31,750 for single filers; over $63,500 for joint filers)
  • Average Combined State and Local Sales Tax Rate: 6.94%
  • Median Property Tax Rate: $1,614 per $100,000 of assessed home value

While the cost of housing is comparatively low in the Cornhusker State, the average property tax rate in the state is quite high. For a $300,000 home, the state-wide average tax in Nebraska comes to $4,842 per year. That’s the ninth-highest property tax amount in our U.S. rankings, and it’s the primary reason why Nebraska is on the least tax-friendly list.

Sales taxes in Nebraska are middle-of-the-road. There’s a 5.5% state tax, and localities can add as much as 2.5%. That works out to an average combined state and local rate of 6.94%, according to the Tax Foundation.

Finally, on the bright side, income taxes are below average in Nebraska for our hypothetical middle-class family. However, they’re not low enough to balance out the state’s high property taxes.

For more information on these and other Nebraska state taxes, see the Nebraska State Tax Guide for Middle-Class Families.

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8. Maryland

picture of Maryland with state nicknamepicture of Maryland with state nickname
  • State Income Tax Range: 2% (on taxable income up to $1,000) to 5.75% (on taxable income over $250,000 for single filers; over $300,000 for joint filers)
  • Average Combined State and Local Sales Tax Rate: 6%
  • Median Property Tax Rate: $1,057 per $100,000 of assessed home value

Middle-class families in the Old Line State get killed when it comes to state and local income taxes. (Baltimore City and every county in Maryland imposes a local income tax.) For our hypothetical family, Maryland’s income tax bill is the second-highest is the country.

The news is better when it comes to property taxes. If our made-up family moved into a $300,000 home in Maryland, they’d pay an estimated $3,171 in tax each year if the state’s median property tax rate were applied. That property tax amount is right around the national average that we’re seeing in our survey.

The Maryland tax system is actually quite friendly to shoppers, though. Like Michigan, there’s a 6% state sales tax, but that’s it – there are no additional local sales taxes to pay. That means the overall state and local sales tax burden on Marylanders is below average.

For more information on these and other Maryland state taxes, see the Maryland State Tax Guide for Middle-Class Families.

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7. Kansas

picture of Kansas with state nicknamepicture of Kansas with state nickname
  • State Income Tax Range: 3.1% (on taxable income from $2,501 to $15,000 for single filers; from $5,001 to $30,000 for joint filers) to 5.7% (on taxable income over $30,000 for single filers; over $60,000 for joint filers).
  • Average Combined State and Local Sales Tax Rate: 8.69%
  • Median Property Tax Rate: $1,369 per $100,000 of assessed home value

Most people don’t think of the farm belt as a high-tax area, but here’s another state from that region on our least tax-friendly list (Nebraska was the first). With Kansas, its sales tax is the main culprit behind its poor (from a taxpayer standpoint) showing. According to the Tax Foundation, the combined average state and local sales tax rate is 8.69% (the state rate is 6.5%). That’s the eighth-highest combined sales tax rate in the country.

The news gets a little better when it comes to other taxes in the Sunflower State. For instance, income taxes are only slightly above average for middle-class families. However, hundreds of local governments in Kansas also impose a tax on interest, dividends, and other earnings from intangible property. The local rates range from 0.125% to 2.25%. Even though the local taxes aren’t on all income, they certainly push up the overall tax burden for many families in the state.

Property taxes in Kansas are above average, too. If our hypothetical family moved to Kansas and bought a $300,000 home in the state, they would pay about $4,107 in property taxes each year based on the state’s median tax rate. That’s the 15th-highest amount in the country for a home at that value.

For more information on these and other Kansas state taxes, see the Kansas State Tax Guide for Middle-Class Families.

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6. Wisconsin

picture of Wisconsin with state nicknamepicture of Wisconsin with state nickname
  • State Income Tax Range: 3.54% (on taxable income up to $11,450 for single filers; up to $15,960 for joint filers) to 7.65% (on taxable income over $263,480 for singles; over $351,310 for joint filers)
  • Average Combined State and Local Sales Tax Rate: 5.43%
  • Median Property Tax Rate: $1,684 per $100,000 of assessed home value

The Badger State owes its spot on our list of the least tax-friendly states for middle-class families to high property taxes. And we estimate that property taxes for a $300,000 home in Wisconsin would run about $5,052 per year. That’s the eighth-highest property tax amount in our nation-wide rankings.

Income taxes are above average for middle-class families in Wisconsin, too. The state did reduce the 2020 income tax rates for people with lower incomes. However, the rate cut didn’t help our imaginary middle-class family, because their income put them in a higher Wisconsin tax bracket that wasn’t adjusted.

The good news is that sales taxes are actually low in Wisconsin. There’s a 5% state sales tax, but local governments can add their own tax to it. But, overall, Wisconsin has the ninth-lowest combined average state and local tax rate in the nation, says the Tax Foundation.

For more information on these and other Wisconsin state taxes, see the Wisconsin State Tax Guide for Middle-Class Families.

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5. New York

picture of New York with state nicknamepicture of New York with state nickname
  • State Income Tax Range: 4% (on taxable income up to $8,500 for single filers; up to $17,150 for joint filers) to 8.82% (on taxable income over $1,070,550 for single filers; over $2,155,350 for joint filers)
  • Average Combined State and Local Sales Tax Rate: 8.52%
  • Median Property Tax Rate: $1,692 per $100,000 of assessed home value

For our hypothetical middle-class family, New York’s income tax bill is only in the “average” range when compared to the taxes imposed by other states. However, New York City and Yonkers tack on their own income taxes, and there’s a commuter tax for people working in and around New York City. So, the overall state and local income tax bill is higher for people living in those parts of the state.

While income taxes in the Empire State aren’t too high for middle-class families, things start to get bad when you look at sales taxes. The state sales tax rate is only 4%. But local taxes can add as much as 4.875% more. At 8.52%, New York’s average combined state and local sales tax rate is the 10th-highest in the country, according to the Tax Foundation.

And then things go from bad to worse when property taxes are added to the mix. The average property tax on a $300,000 home in New York is about $5,076, which is tied for the seventh-highest property tax amount in the country for a home worth that much. But in some high-cost parts of the state, such as Westchester County, homeowners pay more than twice that amount, which means they’re pinched even more by the $10,000 cap on the federal deduction for state and local taxes.

For more information on these and other New York state taxes, see the New York State Tax Guide for Middle-Class Families.

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4. New Jersey

picture of New Jersey with state nicknamepicture of New Jersey with state nickname
  • State Income Tax Range: 1.4% (on taxable income up to $20,000) to 10.75% (on taxable income over $1 million)
  • Average Combined State and Local Sales Tax Rate: 6.6%
  • Median Property Tax Rate: $2,417 per $100,000 of assessed home value

For middle-class families in the Garden State, income taxes are relatively low when compared with other states. New Jersey checked with the fourth-lowest income tax total out of all the states with a broad-based income tax when we calculated income tax bills for our hypothetical family. (There’s also a payroll tax in Newark.)

Sales taxes are below average in New Jersey, too. The state sales tax rate is 6.625%. But because some areas charge only half the state rate on certain sales, the Tax Foundation says that New Jersey’s average state and local combined sales tax rate is only 6.6%.

But while New Jersey gives residents a break on income and sales taxes, it brings the hammer down when they buy a home. New Jersey’s property taxes are the highest in the U.S. The state-wide average property tax on a $300,000 home in New Jersey comes to a whopping $7,251.

For more information on these and other New Jersey state taxes, see the New Jersey State Tax Guide for Middle-Class Families.

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3. Iowa

picture of Iowa with state nicknamepicture of Iowa with state nickname
  • State Income Tax Range: 0.33% (on taxable income up to $1,666) to 8.53% (on taxable income over $74,970)
  • Average Combined State and Local Sales Tax Rate: 6.94%
  • Median Property Tax Rate: $1,529 per $100,000 of assessed home value

Which do you think is higher in Iowa: the corn or taxes? It might be taxes, thanks to staggering income and property taxes in the state. Iowa’s income tax on our hypothetical middle-class family is the third-highest in the country. One reason why income taxes are on the high end in the state is because over 200 school districts and Appanoose County add their own income taxes on top of the state-level tax.

Our survey also shows that the average property tax rate in the Hawkeye State is the 11th-highest in the nation. If our hypothetical family bought a $300,000 home in the state, they can expect to pay about $4,587 per year in property taxes. That certainly doesn’t help middle-class families in Iowa.

While sales taxes in Iowa aren’t low, at least they’re not as high as the state’s income and property taxes. The state sales tax rate is 6%, and localities can add as much as 1%. That puts Iowa’s combined average state and local sales tax rate (6.94%, according to the Tax Foundation) in the middle-of-the-pack when compared to the rates in other states.

For more information on these and other Iowa state taxes, see the Iowa State Tax Guide for Middle-Class Families.

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2. Connecticut

picture of Connecticut with state nicknamepicture of Connecticut with state nickname
  • State Income Tax Range: 3% (on taxable income up to $10,000 for single filers; up to $20,000 for joint filers) to 6.99% (on taxable income over $500,000 for single filers; over $1 million for joint filers)
  • Average Combined State and Local Sales Tax Rate: 6.35%
  • Median Property Tax Rate: $2,139 per $100,000 of assessed home value

The Constitution State is an expensive place to live. Connecticut’s property taxes are the third-highest in the U.S., so the $10,000 cap on the federal tax deduction for state and local taxes stings a bit more here. The state-wide average property tax for a $300,000 home is $6,417 per year. However, residents in high-income areas such as Fairfield County typically pay more than $10,000 in property taxes each year, so their federal tax deductions for state and local taxes have been curtailed.

State income taxes on are the high end, too. Connecticut income taxes for our make-believe middle-class are above average, but not sky high.

Sales taxes are also reasonable in Connecticut. There are no local sales taxes in Connecticut, so you’ll pay only the statewide rate of 6.35% (slightly below average) on most of your purchases. But luxury items, such as cars valued at $50,000 or more or jewelry worth more than $5,000, are taxed at 7.75%.

For more information on these and other Connecticut state taxes, see the Connecticut State Tax Guide for Middle-Class Families.

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1. Illinois

picture of Illinois with state nicknamepicture of Illinois with state nickname
  • State Income Tax Range: 4.95% (flat rate)
  • Average Combined State and Local Sales Tax Rate: 8.82%
  • Median Property Tax Rate: $2,165 per $100,000 of assessed home value

Sorry, Illinois, but you’re the least tax-friendly state in the country for middle-class families. For all three taxes we’re tracking – income, sales, and property taxes – you tax middle-income residents at an above average rate (at least). And for one of those taxes, the rates are extremely high. That’s enough to put the Land of Lincoln in the most undesirable spot on our list.

At first blush, the state’s 4.95% flat income tax rate doesn’t seem that steep when compared to other states’ top tax rates. And that’s true if you’re talking about wealthy residents. But for middle-class taxpayers, the income tax rate is one the high end. Also note that Illinois voters rejected a proposal on the November 2020 ballot that would have dumped the flat tax in favor of a graduated income tax. If it had passed, the marginal tax rate for most middle-income residents would have dropped slightly to 4.9%.

Sales taxes in Illinois are high, too. There’s a 6.25% state tax on purchases in Illinois (1% on groceries and prescription drugs). Plus, up to 4.75% in local taxes are tacked on in certain places within the state. All told, the average combined state and local sales tax in Illinois is 8.82%, which is the seventh-highest combined sales tax rate in the U.S.

The tax situation really goes downhill fast for Illinois residents when you look at the property taxes they have to pay. Property taxes in Illinois are the second-highest in the nation. If our hypothetical family purchased a $300,000 home in the state, their average annual property tax bill would be an eye-popping $6,495.

For more information on these and other Illinois state taxes, see the Illinois State Tax Guide for Middle-Class Families.

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About Our Methodology

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Our tax maps and related tax content include data from a wide range of sources. To generate our rankings, we created a metric to compare the tax burden in all 50 states and the District of Columbia.

Data sources:

Income tax – Our income tax information comes from each state’s tax agency. Income tax forms and instructions were also used. See more about how we calculated the income tax for our hypothetical family below under “Ranking method.”

Property tax – The median property tax rate is based on the median property taxes paid and the median home value in each state for 2019 (the most recent year available). The data comes from the U.S. Census Bureau.

Sales tax – State sales tax rates are from each state’s tax agency. We also cite the Tax Foundation’s figure for average combined sales tax, which is a population-weighted average of state and local sales taxes. In states that let local governments add sales taxes, this gives an estimate of what most people in a given state actually pay, as those rates can vary widely.

Ranking method

The “tax-friendliness” of a state depends on the sum of income, sales and property tax paid by our hypothetical family.

To determine income tax, we prepared returns for a married couple with two dependent children, an earned income of $77,000, long-term capital gains of $1,500, qualified dividends of $1,000, and taxable interest of $500. They had $4,500 in state income taxes withheld from their wages. They also paid $3,000 in real estate taxes, paid $2,800 in mortgage interest, and donated $2,300 (cash and property) to charity. Since some states have local income taxes, we domiciled our filers in each state’s capital, from Juneau to Cheyenne. We calculated these 2019 returns using software from Credit Karma.

How much they paid in sales taxes was calculated using the IRS’ Sales Tax Calculator, which is localized to zip code. To determine those, we used Zillow to determine zip codes with housing inventory close to our sample assessed value.

How much the hypothetical family paid (and deducted on their income tax return) in property taxes was calculated by assuming a residence with $300,000 assessed value and then applying each state’s median property tax rate to that amount.

Source: kiplinger.com

DACA home loans — FHA will now approve home loans for ‘Dreamers.’ Here’s how to get approved

‘Dreamers’ can now get approved for FHA home loans

‘Dreamers’ — U.S. residents with DACA status — just got a huge boost to their homeownership dreams. The Federal Housing Administration (FHA) announced it had changed its policy on DACA home loans.

From this day forward, FHA is willing to approve home loans for DACA recipients — meaning they’ll get access to the low-down-payment FHA mortgage program that’s so popular with U.S. home buyers.

This new rule opens up the field of mortgage options for Dreamers, giving them access to a wider variety of affordable, accessible paths to homeownership.

Check your home loan options (Jan 25th, 2021)


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FHA’s new stance on DACA home loans

In a statement, U.S. Sen. Sherrod Brown (D-OH), who’s expected to soon chair the Senate Committee on Banking, Housing, and Urban Affairs, summed up what the change means: “DACA recipients are fully eligible for FHA loans.”

FHA’s new policy should make it easier for many Dreamers to buy real estate in the United States.

You might assume that this change was one of the first acts of the Biden administration. But, actually, it was one of the last of the outgoing Trump administration.

Previous FHA rules for DACA recipients

Official policy before January 19 (it was changed the day before it was announced) was that DACA recipients were ineligible for FHA loans.

According to the FHA Single Family Housing Handbook, “Non-US citizens without lawful residency in the U.S. are not eligible for FHA-insured mortgages.”

And up until January 19, those classified under the Deferred Action for Childhood Arrivals program (DACA) did not count as lawful residents according to HUD (the agency that manages the FHA).

FHA loans are one of the easiest mortgage programs to qualify for, having more lenient guidelines than many other home loans.

So for many Dreamers, the reversal of this policy is a significant change.

New FHA rules for Dreamers

Of course, the new rule only levels the playing field for DACA recipients.

Applicants still need to meet the same eligibility guidelines as every other lawful resident in order to get their FHA loan approved. More on those in a minute.

Note that Dreamers weren’t entirely locked out of homeownership even before the change.

They have always been eligible for some conventional loans, subject to lenders’ policies, including conforming ones that are offered by Fannie Mae.

Check your home loan options (Jan 25th, 2021)

FHA loan benefits

If Dreamers have been able to get some mortgage loans all along, what difference will access to FHA loans make?

Well, they’ll be able to access the same advantages that attracted more than 8 million borrowers who currently have single-family mortgages backed by the FHA.

Some of the biggest benefits of an FHA loan include:

  1. Small minimum down payment — Only 3.5% of the purchase price is required
  2. Lower credit score — Lenders approve applicants with FICO scores of just 580 and 3.5% down. You might even get a loan if yours is 500-579, if you can make a 10% down payment (though it will be harder to find a lender)
  3. More flexibility with existing debts — FHA loans typically allow higher debt-to-income ratios (DTIs) than other types of mortgages. So if you have a lot of existing debt, it could be easier to qualify

No wonder FHA loans are popular among first-time buyers and those who’ve been through difficult financial patches. And why they’re likely to appeal as DACA home loans.

One more thing. If you’re struggling to come up with a 3.5% down payment and cash for closing costs, explore the grants and loans (sometimes forgivable loans) that are open to homebuyers everywhere.

These down payment assistance programs are available in every state, and are often targeted toward first-time and lower-income home buyers who need a little extra help with their upfront housing costs.

FHA loan drawbacks

Inevitably, there’s a downside along with all those perks. FHA loans typically have higher borrowing costs than many other sorts of mortgage loans.

It’s not that FHA mortgage rates are higher. They’re actually pretty competitive.

Rather, the added cost comes from FHA loan mortgage insurance premiums (MIP).

MIP adds an upfront cost equal to 1.75% of your loan amount (most home buyers roll this into the mortgage balance). And it adds an annual cost equal to 0.85% of the loan balance (paid monthly).

Conventional loans charge mortgage insurance, too, if you put less than 20% down. But this can be canceled later on. With an FHA loan, by comparison, you have to refinance to get rid of MIP.

Mortgage insurance is not a bad thing if it helps you buy a home. But if you qualify for both an FHA loan and a conventional loan, be sure to compare the cost of mortgage insurance on each one so you understand which has higher long-term costs.

Which DACA recipients are eligible for an FHA mortgage?

If you’re a Dreamer, you may well find FHA loans appealing. And you’ll be anxious to know whether you personally are eligible.

So here, quoting extracts from the announcement, is what the FHA says borrowers will need:

  1. A valid Social Security Number (SSN), except for those employed by the World Bank, a foreign embassy, or equivalent employer identified by the Department of Housing and Urban Development (HUD)
  2. Eligibility to work in the U.S., as evidenced by the Employment Authorization Document issued by the USCIS
  3. To satisfy the same requirements, terms, and conditions as those for U.S. citizens

To the third point, those requirements include a credit score of at least 580; a down payment of at least 3.5%; and a debt-to-income ratio below 50%.

Your lender you apply with will require documents to verify credit, income, savings, and employment when you turn in your loan application.

You also need to make sure your loan amount (home price minus down payment) is within the FHA’s loan limits for your area.

FHA also requires that the property be your primary residence, meaning you must plan to live there full time.

Employment Authorization Document

That Employment Authorization Document is clearly central to your application succeeding. But suppose yours is due to expire within a year.

That shouldn’t be a problem. The FHA says:

“If the Employment Authorization Document will expire within one year and a prior history of residency status renewals exists, the lender may assume that continuation will be granted. If there are no prior renewals, the lender must determine the likelihood of renewal based on information from the USCIS.”

In other words, you should be fine if your status has already been renewed at least once. There’s an assumption it will be again.

If it hasn’t already been renewed, the lender will check with US Citizenship and Immigration Services (USCIS) to see how likely a renewal is.

Check your FHA loan eligibility (Jan 25th, 2021)

Other home loan options for Dreamers

We already mentioned that some lenders of “conventional loans” (meaning those that are not backed by the government) consider applications from Dreamers.

Fannie Mae’s conforming loans are also open to those in the DACA program.

Most mortgage lenders offer loans backed by Fannie Mae, and these include a wide variety of options like:

  • The 3% down Conventional 97 loan
  • The 3% down HomeReady loan for low-income buyers
  • Loans with less than 20% down WITH mortgage insurance (PMI)
  • Loans with 20% down payment or more and NO mortgage insurance

The situation is less clear for Freddie Mac (the other agency that backs “conforming” home loans).

Freddie’s guidance uses language that was similar to the FHA’s old wording. And those who lacked “lawful residency status” were ineligible. A search of its website on the day this was written revealed no hits for “DACA” or related terms.

But it may well be that Freddie will soon update or clarify its DACA policies now that the FHA has — and now that a new, more Dreamer-friendly administration is in place.

And it would be no surprise if other organizations (including the VA and USDA) similarly refined their policies in coming weeks to reflect those factors.

If you’re a DACA recipient in the market for a home loan in the coming year, keep an eye on the news and do periodic Google searches of these agencies to see whether any new loan programs have been added to your list of options.

Explore your home loan options (Jan 25th, 2021)

Which DACA home loans are best for you? 

On average, DACA recipients are younger than the US population as a whole, because they had to be under 31 years as of June 15, 2012. But, besides that, it may be a mistake to generalize about them.

Just as other American residents, some Dreamers will have stellar credit scores and others bad ones. Some will have plenty of savings and others won’t. And some will be laden with student loans and other debts, while others owe nothing.

So a DACA borrower needs to seek out the type of loan that best suits their personal financial circumstances — just like everyone else.

Those most attractive to lenders (high credit scores, 20% down payment, and small debts) will likely find a conventional loan to be their best bet.

Those with low scores, 3.5% down payment, and lots of debts may need to go for FHA loans.

And those between the two might find Fannie Mae offers their best deals. Better yet, Fannie requires a minimum down payment of just 3%.

Shop for loan options and mortgage rates

Whichever type of loan you choose, be aware that you’ll be borrowing from a private lender. The mortgage rates and overall deals you’ll be offered are likely to vary widely from one lender to the next.

So be sure to comparison shop for your mortgage, getting competitive quotes from several lenders and comparing them side by side.

That’s the best way to find a low interest rate and save money on your home loan, no matter which program you choose.

Verify your new rate (Jan 25th, 2021)

Source: themortgagereports.com

10 Most Tax-Friendly States for Retirees

If you’re thinking of moving to a different state in retirement, you’ll want to consider climate, proximity to family and friends, access to quality health care, and a host of other important factors before picking a new location. But make sure you add taxes in the new state to the list of considerations. The total state and local tax burden in one place can be thousands of dollars more per year than in another. That can make a huge difference when you’re trying to stretch out your retirement savings.

To do a head-to-head, multistate comparison of state taxes on retirees, you can use Kiplinger’s State-by-State Guide to Taxes on Retirees. But if you’re just looking for the 10 states that impose the lowest taxes on retirees, check out the list below. Our results are based on the estimated state and local tax burden in each state for two hypothetical retired couples with a mixture of income from wages, Social Security, traditional and Roth IRAs, private pensions, 401(k) plans, interest, dividends, and capital gains. One couple had $50,000 in total income and a $250,000 home, while the other had $100,000 of income and a $350,000 home.

All but one of the states on our “most tax-friendly” list completely exempt Social Security benefits from state income taxes. Most also allowed an exemption for at least a portion of our hypothetical couples’ other retirement income, such as private pensions or IRA withdrawals. They tend to have low property tax rates and/or reasonable sales tax rates, too. Take a look and see for yourself. We list the most tax-friendly state for retirees last.

See the final slide for a complete description of our ranking methodology and sources of information.

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10. Tennessee

picture of Tennessee map with pin in itpicture of Tennessee map with pin in it
  • State Income Tax Range: 1% on interest and dividends
  • Average Combined State and Local Sales Tax Rate: 9.55%
  • Median Property Tax Rate: $636 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

Residents of the Volunteer State pay no taxes on Social Security benefits, pensions or distributions from their retirement plans. That’s because there’s no broad-based income tax in Tennessee—only interest and dividends are subject to the state’s limited income tax. (Tennessee is one of a handful of states with no income tax.) Plus, anyone 65 years of age or older with total annual income of $37,000 or less ($68,000 or less for joint filers) is completely exempt from the 1% tax. It’s also waived if you’re at least 100 years old. On top of all that, the tax is being phased out at a rate of 1% per year. So it will be completely eliminated by 2021.

There are also no estate or inheritance taxes in Tennessee. That will put your heirs at ease.

Property taxes in Tennessee aren’t too bad, either. For instance, our hypothetical couple with a $250,000 home in the state would pay about $1,590 per year in property taxes ($2,226 for the couple with a $350,000 home). That’s well below the national average. There are also property tax relief programs in the state offering property tax reimbursements to income-eligible senior citizens. Tennessee also has a property tax freeze program for homeowners age 65 and older.

Watch out for Tennessee’s sales tax, though. The state’s 9.55% average combined state and local sales tax rate is the highest in the country. Tennessee is also one of the few states where groceries are subject to sales tax—they’re taxed at a 4% rate by the state (additional local taxes may also apply).

For more information, see the Tennessee State Tax Guide for Retirees.

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9. Arkansas

picture of Arkansas map with pin in itpicture of Arkansas map with pin in it
  • State Income Tax Range: 0.75% (on taxable income up to $4,499 for taxpayers with net income from $22,200 to $79,300) to 6.6% (on taxable income over $79,300 for taxpayers with net income above $79,300)
  • Average Combined State and Local Sales Tax Rate: 9.51%
  • Median Property Tax Rate: $612 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

Arkansas usually isn’t one of the places you automatically think of as a retirement destination…but maybe it should be. At least from a tax standpoint, the Natural State has a lot to offer retirees. Let’s start with the state’s income tax rates—which are structured in a way that favors retirees with lower incomes (and the top rate for top earners is going down to from 6.6% to 5.9% in 2021). Social Security benefits are tax-free, and the state allows a broad-based exemption of up to $6,000 for other types of retirement income.

Another plus: Low property taxes. At only $612 per year, Arkansas’ median property tax rate is well below the national average ($250,000 home = $1,530 in tax; $350,000 home = $2,142 in tax). Plus, seniors in the state can have their property taxes “frozen” and annual increases are limited. There are no estate or inheritance taxes in Arkansas, either.

The state’s Achilles heel is its sales tax. The statewide sales tax is 6.5%, and local jurisdictions can add up to 5.125% of their own taxes. When you add it all up, Arkansas has the second-highest average combined state and local tax rate in the country.

For more information, see the Arkansas State Tax Guide for Retirees.

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8. Arizona

picture of Arizona map with pin in itpicture of Arizona map with pin in it
  • State Income Tax Range: 2.59% (on taxable income up to $27,272 for single filers; up to $54,544 for joint filers) to 4.5% (on taxable income over $163,632 for single filers; over $327,263 for joint filers)
  • Average Combined State and Local Sales Tax Rate: 8.4%
  • Median Property Tax Rate: $617 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

The Grand Canyon State exempts Social Security benefits from state income taxes, plus up to $2,500 of income from federal and Arizona government retirement plans. Up to $3,500 of military retirement income is also tax-free in Arizona. Income tax rates are relatively low, too. (Although, starting in 2021, the state will impose a 3.5% surtax on taxable income over $500,000 for joint filers and over $250,000 for single taxpayers.)

The estimated property tax on our first hypothetical retired couple’s $250,000 home in Arizona is only $1,543 per year. For our second couple’s $350,000 residence, the estimated annual tax is only $2,160. Both those amounts are significantly below the national average. In addition, homeowners age 65 and older can “freeze” the value of their property for real estate tax purposes for three years if they lived in the home for at least two years and their annual income is below $37,584 (one owner) or $46,980 (multiple owners). Other property tax breaks are available for seniors, too.

Sales taxes in Arizona are above average, though. The average combined (state and local) rate is 8.4%, which is the 11th-highest in the nation. However, Arizona does not have an estate or inheritance tax, which makes it a more attractive retirement destination for wealthier seniors.

For more information, see the Arizona State Tax Guide for Retirees.

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7. South Carolina

picture of South Carolina map with pin in itpicture of South Carolina map with pin in it
  • State Income Tax Range: 3% (on taxable income from $3,070 to $6,150) to 7% (on taxable income over $15,400)
  • Average Combined State and Local Sales Tax Rate: 7.46%
  • Median Property Tax Rate: $545 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

The Palmetto State extends some real southern hospitality to retirees by offering a charming collection of income tax breaks. To start, Social Security benefits are completely exempt. In addition, taxpayers age 65 or older can exclude up to $10,000 of retirement income (up to $3,000 for taxpayers under 65). Seniors can also deduct $15,000 of other taxable income ($30,000 for joint filers). Plus, veterans who are at least 65 years old can exclude up to $30,000 of income from a military retirement plan (up to $17,500 for veterans under 65).

Low property tax rates in South Carolina help retirees, too. The statewide average property tax on a $250,000 home in the state is only $1,363. It’s only $1,908 for a $350,000 residence. Those amounts are the sixth-lowest in the country for houses at those price points. Seniors can also claim a homestead exemption for the first $50,000 of their property’s fair market value. To qualify, you must have been at least 65 years old and a legal resident of South Carolina for one year, as of July 15 the year the exemption is claimed.

The lack of an estate or inheritance tax also makes South Carolina a desirable location for wealthy seniors.

There is some bad news, though. Sales taxes are on the high end in South Carolina. There’s a 6% statewide levy, and local governments can add as much as 3%. The average combined rate is 7.46%, which is well above average. Counties also impose an annual tax on your motor vehicle’s value.

For more information, see the South Carolina State Tax Guide for Retirees.

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6. Colorado

picture of Colorado map with pin in itpicture of Colorado map with pin in it
  • State Income Tax Range: 4.55% (flat rate)
  • Average Combined State and Local Sales Tax Rate: 7.72%
  • Median Property Tax Rate: $494 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

Many retirees in Colorado feel a Rocky Mountain high when they see their low property tax bill. The state’s median property tax rate is the third-lowest in the nation. For our hypothetical retired couple with a $250,000 house, that comes to an estimated $1,235 annual property tax bill. It’s only $1,729 per year for our other couple’s $350,000 residence. Property tax exemptions, rebates and deferrals are also available for qualified seniors. Residents age 60 and older can also take advantage of a unique property tax “work-off” program, which lets them work for the city or county government to pay off a portion of their property taxes.

Income taxes are reasonable in the Centennial State, too. Colorado voters approved a measure on the November 2020 ballot that reduces the state’s flat income tax rate from 4.63% to 4.55%. The state also limits the how much its revenue can grow from year-to-year by lowering the tax rate if revenue growth is too high.

Wealthier retirees will also appreciate the fact that Colorado doesn’t impose an estate or inheritance tax. So, more of your money can be passed on to your family when you die.

Sales taxes will bring retirees back down to earth, though. Although the state sales tax rate is low—only 2.9%—local governments can tack on as much as 8.3%. As a result, the combined state and local sales tax rate is above the national average.

For more information, see the Colorado State Tax Guide for Retirees.

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5. Nevada

picture of Nevada map with pin in itpicture of Nevada map with pin in it
  • State Income Tax Range: None
  • Average Combined State and Local Sales Tax Rate: 8.23%
  • Median Property Tax Rate: $533 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

Nevada is a good place to spend your golden years if you don’t want to gamble with your retirement savings. That’s because the Silver State offers retirees a jackpot of tax savings. There is no state income tax, so you can cash in your retirement plans and collect your Social Security checks without worrying about a big state tax bill. There are no estate or inheritance taxes in Nevada, either.

Nevada also has the fourth-lowest median property tax rate in the U.S. So, if our first make-believe couple retired to Nevada and bought a $250,000 home, they should expect to pay around $1,333 per year in property taxes on the residence. For our second imaginary couple, they would only pay about $1,866 annually on their $350,000 home. Unfortunately, however, Nevada doesn’t offer any special property tax breaks for seniors.

Sales tax is one area where Nevada could do better. The state imposes a 6.85% tax, and counties may tack on up to 1.53% more. As a result, the average combined state and local sales tax rate is 8.23% (that’s the 12th-highest combined rate in the country).

For more information, see the Nevada State Tax Guide for Retirees.

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4. Wyoming

picture of Wyoming map with pin in itpicture of Wyoming map with pin in it
  • State Income Tax Range: None
  • Average Combined State and Local Sales Tax Rate: 5.33%
  • Median Property Tax Rate: $575 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

The Equality State is #1 in our rankings for the most tax-friendly state for middle-class families. So it should be no surprise that Wyoming is a tax-friendly place for retirees, too. The favorable tax climate for seniors starts with zero income, estate or inheritance taxes.

Sales taxes are low in Wyoming, too. The average combined state and local sales tax rate is only 5.33%, which is the eighth-lowest combined sales tax rate in the country.

You won’t pay high property taxes to own a home on the range, either. For a $250,000 home in Wyoming, the statewide average annual property tax bill comes to just $1,438. It’s only $2,013 for a $350,000 home. Those amounts are tied for the 10th-lowest tax totals in the nation for each price point. Plus, in tough times like these, it’s also good to know that eligible seniors in Wyoming can delay payment of up to 50% of their property taxes if money gets tight in retirement.

For more information, see the Wyoming State Tax Guide for Retirees.

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3. District of Columbia

picture of Washington, D.C., map with pin in itpicture of Washington, D.C., map with pin in it
  • State Income Tax Range: 4% (on taxable income up to $10,000) to 8.95% (on taxable income over $1 million)
  • Average Combined State and Local Sales Tax Rate: 6%
  • Median Property Tax Rate: $564 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: Estate tax

Although the general cost of living in Washington, D.C., is high, the average tax burden for retirees isn’t. When it comes to income taxes, there are two keys to a lower tax bill. First, how much of your income is from Social Security benefits is an important factor. That’s because the city doesn’t tax Social Security payments, but it does tax most other common forms of retirement income, such as pensions, 401(k) funds, and IRA withdrawals. Second, qualifying for the city’s income tax credit for property taxes paid can make a huge difference in the amount of tax you owe. The refundable credit is worth up to $1,200 (as a “refundable” credit, if it’s worth more than the tax you owe, the city will send you a refund check for the difference). Plus, certain seniors have a higher income threshold for claiming the credit. For 2020, residents age 70 and older are eligible for the credit if their federal adjusted gross income is $75,900 or less, while the threshold is $55,700 or less for younger residents.

Shoppers don’t get hit too hard with taxes in the District of Columbia, either. The city imposes a 6% tax on purchases…but that’s it. There are no extra “local” taxes to worry about. As a result, the overall sales tax rate in D.C. is well below the national average when both state and local taxes are considered.

Property taxes are low in D.C., too. The District’s median property tax rate is the eighth-lowest when compared with comparable data from all 50 states. For our hypothetical retired couples, their estimated annual property tax bills in D.C. would be $1,410 ($250,000 home) and $1,974 ($350,000 home). Plus, homeowners 65 and older may qualify for a 50% property tax reduction or deferral of property tax payments.

Here’s one important downside for wealthier retirees: For 2021, Washington, D.C., estates worth $4 million or more are subject to a city estate tax.

For more information, see the District of Columbia State Tax Guide for Retirees.

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2. Hawaii

picture of Hawaii map with pin in itpicture of Hawaii map with pin in it
  • State Income Tax Range: 1.4% (on taxable income up to $2,400 for single filers; up to $4,800 for joint filers) to 11% (on taxable income over $200,000 for single filers; over $400,000 for joint filers)
  • Average Combined State and Local Sales Tax Rate: 4.44%
  • Median Property Tax Rate: $280 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: Estate tax

If your dream is to retire to a tropical island paradise, don’t let taxes get in the way. Hawaii has one of the lowest average state and local tax burdens in the U.S. Higher-income seniors may get caught in the Aloha State’s lofty income tax rates (the top rate is a whopping 11%), but most retirees won’t pay nearly that much. (Hawaii actually has 11 income tax rates below 11%.) Social Security benefits are completely tax-free. Employer contributions to other forms of retirement income are also exempt (e.g., traditional pensions and employer contributions to 401(k) plans).

Although housing prices are high in Hawaii, property tax rates are really low. In fact, the statewide median property tax rate is the lowest in the whole country (and by a pretty good margin). If our hypothetical retire couples moved to Hawaii, their estimated annual property tax bills would be only $700 ($250,000 home) and $980 ($350,000 home). Depending on where in Hawaii they live, senior could also qualify for some additional property tax relief.

Sales tax rates are low, too. The state imposes a 4% tax, but localities can add as much as 0.5%. The average combined state and local rate is only 4.44%, which is the seventh-lowest rate in the nation. Most things are taxable in Hawaii—including groceries and clothing—so residents typically end up paying more than the low rate suggests.

Hawaii also imposes an estate tax on estates worth $5.49 million or more. Tax rates range from 10% to 20%.

For more information, see the Hawaii State Tax Guide for Retirees.

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1. Delaware

picture of Delaware map with pin in itpicture of Delaware map with pin in it
  • State Income Tax Range: 2.2% (on taxable income from $2,001 to $5,000) to 6.6% (on taxable income over $60,000)
  • Average Combined State and Local Sales Tax Rate: 0%
  • Median Property Tax Rate: $562 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

Congratulations, Delaware – you’re the most tax-friendly state for retirees! With no sales tax, low property taxes, and no death taxes, it’s easy to see why Delaware is a tax haven for retirees. For beginners, you’ll have more disposable income in your golden years if you live in the First State, because you’ll pay zero state or local sales tax on your in-state purchases (Delaware is one of only a handful of states with no sales tax).

You’ll also have more money to spend on the grandkids because property taxes are so low. The estimated annual property tax bill in Delaware for our first make-believe retired couple is just $1,405 on their $250,000 home. It’s just $1,967 for our second imaginary couple’s $350,000 home in the state. Those property tax totals are the seventh-lowest amounts in the nation for homes at those prices. So, our make-believe retired couples will be quite happy in the state. Plus, some Delaware seniors qualify for a school property tax credit of up to $400 (you might have to live in the state for 10 years to get it, though).

Since there are no estate or inheritance taxes in Delaware, you can pass along more of your wealth to the grandkids, too (or to other family, friends or charities).

The only downside—and it really isn’t that bad—are middle-of-the-road income taxes. The rates are comparatively reasonable, and residents age 60 and older can exclude up to $12,500 of pension and other retirement income (including dividends and interest, capital gains, IRA and 401(k) distributions, etc.). Social Security benefits are also exempt. But, in the end, income taxes don’t add enough to a retiree’s overall tax burden to keep the state out of the top spot on our list.

For more information, see the Delaware State Tax Guide for Retirees.

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About Our Methodology

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Our tax maps and related tax content include data from a wide range of sources. To generate our rankings, we created a metric to compare the tax burden in all 50 states and the District of Columbia.

Data sources

Income tax – Our income tax information comes from each state’s tax agency. Income tax forms and instructions were also used. See more about how we calculated the income tax for our hypothetical retired couples below under “Ranking method.”

Property tax – The median property tax rate is based on the median property taxes paid and the median home value in each state for 2019 (the most recent year available). The data comes from the U.S. Census Bureau.

Sales tax – State sales tax rates are from each state’s tax agency. We also cite the Tax Foundation’s figure for average combined sales tax, which is a population-weighted average of state and local sales taxes. In states that let local governments add sales taxes, this gives an estimate of what most people in a given state actually pay, as those rates can vary widely.

Ranking method

The “tax-friendliness” of a state depends on the sum of income, sales and property tax paid by our two hypothetical retired couples.

To determine income taxes due, we prepared returns for both couples. The first couple had $15,000 of earned income (wages), $20,500 of Social Security benefits, $4,500 of 401(k) plan distributions, $4,000 of traditional IRA withdrawals, $3,000 of Roth IRA withdrawals, $200 of taxable interest, $1,000 of dividend income, and $1,800 of long-term capital gains for a total income of $50,000 for the year. They also had $10,000 of medical expenses, paid $2,500 in real estate taxes, paid $1,200 in mortgage interest, and donated $1,900 (cash and property) to charity.

The second couple had $37,500 of Social Security benefits, $26,100 of 401(k) plan distributions, $18,200 of private pension money, $4,000 of traditional IRA withdrawals, $2,000 of Roth IRA withdrawals, $2,000 of tax-exempt municipal bond interest (from the state of residence), $2,000 of taxable interest, $4,000 of dividend income, and $4,200 of long-term capital gains for a total income of $100,000 for the year. They also had $10,000 of medical expenses, paid $3,200 in real estate taxes, paid $1,500 in mortgage interest, and donated $4,300 (cash and property) to charity.

Since some states have local income taxes, we domiciled both our couples in each state’s capital, from Juneau to Cheyenne. We calculated their 2019 income tax returns using software from eFile.com.

How much they paid in sales taxes was calculated using the IRS’ Sales Tax Calculator, which is localized to zip code. To determine those, we used Zillow to determine zip codes with housing inventory close to our sample assessed value.

How much each hypothetical family paid (and deducted on their income tax return, if allowed) in property taxes was calculated by assuming a residence with a $250,000 assessed value for the first couple and a $350,000 assessed value for the second couple. We then applied each state’s median property tax rate to that appropriate amount.

Source: kiplinger.com

What This Military Family Faced—and Fought—To Buy Its First House

First-time home buyers today face a tough road, shopping for homes during a pandemic, high housing prices, and deep economic uncertainty. For military families deployed overseas, it’s all even trickier to figure out.

In this second story in our new series “First-Time Home Buyer Confessions,” we talked with husband and wife Kyle LaVallee and Natalie Johnson. They were renting an apartment in Fayetteville, NC, when they decided to start shopping for their own home in the area in April.

At the time, LaVallee was stationed in the Middle East as a sergeant in the U.S. Army. Yet even though he was thousands of miles away, he managed to attend every home tour with Johnson via FaceTime. In July, they closed on a brick, ranch-style three-bedroom that LaVallee would not see in person until a long-awaited trip home in October.

Here’s the couple’s home-buying story, the hardest challenges they faced, and what LaVallee thought of his new house once he home managed to lay eyes on it for the first time.

Location: Fayetteville, NC

House specs: 1,166 square feet, 3 bedrooms, 2 bathrooms
List price: $111,900
Price paid: $115,000

A pandemic plus deployment seems like a tough time to buy your first house. What convinced you to forge ahead?

Johnson: Kyle was deployed in October 2019 while we were renting a one-bedroom apartment in Fayetteville. Kyle wasn’t fond of renewing the apartment lease—we had been there for two years and were running out of space. We wanted to get a dog; we wanted a yard, and our own property where we can do anything we wanted.

We started educating ourselves on the process. We knew a mortgage was going to be significantly less than what we were paying in rent. Kyle thought it would be smart to buy because [nearby] Fort Bragg is one of the biggest military bases in the world. If we ever leave or get stationed somewhere else, we’re not going to have a problem finding anyone to rent it. And we could always come back.

Kyle LaVallee and Natalie Johnson at one of their favorite hangouts in Fayetteville, where they've decided to put down roots
Kyle LaVallee and Natalie Johnson at one of their favorite hangouts in Fayetteville, where they’ve decided to put down roots

Natalie Johnson

LaVallee: I was interested in gaining equity and ownership, rather than just paying to rent something I’d never own in the end.

Johnson: We started looking at houses back in January. In April, we kept seeing information about lowering interest rates. That’s why we got serious about the process in the middle of the pandemic, and when we connected with our real estate agent, Justin Kirk with Century 21.

How much did you put down on the house—and how’d you save for it?

Johnson: We put 20% down.

LaVallee: I was making a lot of money while I was deployed, and I had no expenses really. I was just saving everything I had, knowing I wanted to invest it in a house.

Johnson: I cut spending. I didn’t buy things I wanted, just what I needed. The pandemic helped a lot, honestly because we obviously couldn’t go out.

LaVallee: We qualified for a VA loan, but we just wound up using a conventional loan. Most people in the military will use a VA loan where you don’t put any money down, but [since we had enough saved] we wanted the lowest monthly mortgage payments.

LaVallee and Johnson on LaVallee's first morning in the new house after coming home from deployment
LaVallee and Johnson on LaVallee’s first morning in the new house after coming home from deployment

Natalie Johnson

What were you looking for in a house?

LaVallee: We knew we might [eventually] be moving, so it wasn’t like it had to be a house we would stay in forever, more of an investment property.

Johnson: We were looking for things that would be attractive to future renters. We had a military family in mind because Fayetteville’s got more than 50,000 active-duty. We looked for a location close to a Fort Bragg entrance. We thought three bedrooms was perfect for us because our families are close with each other, so they’ll all come down at the same time so we’ll have two extra bedrooms for them. Kyle really wanted a garage, so that was a huge thing.

LaVallee: Garages aren’t very common down here, so that limited a lot of options for us. A lot of houses have carports, or they finish the garage and turn it into a bonus room.

Johnson: We wanted something that needed a bit of fixing up, because we like to be handy and put our personal touch on everything, and we ultimately knew that would be a lower-cost house.

Johnson and LaVallee's new kitchen
Johnson and LaVallee’s new kitchen

realtor.com

How many homes did you see in person, and how did Kyle participate from overseas?

Johnson: It was 10 or 12 homes. We were out three to four times a week looking at places with our real estate agent. We wore our masks for the tours, and I used hand sanitizer since I was opening and closing drawers and closets. Most were vacant, but we did tour one house that still had people living in it, although they were gone during the tour, so we avoided touching a lot of things.

During tours we FaceTimed Kyle in. We figured that was probably the most convenient way to do it since he could see every single house and room in detail.

The large living room in Johnson and LaVallee's new house
The large living room in Johnson and LaVallee’s new house

realtor.com

LaVallee: Well, I couldn’t really see all the details.

Johnson: He got to know our real estate agent really well via FaceTime. Our agent would say, “Let me know if you need me to hold Kyle while you go look in this room.” I felt so bad, though, because I work full time, so I’d tour homes around 5:30 in the evening, which for Kyle was 2:30 in the morning. But he stayed up for every single tour.

LaVallee: I was sometimes frustrated not being able to be there. I left it all up to her. I had to trust the feelings and vibes she got from each house.

The big backyard where Johnson and LaVallee hope a dog will someday run around
The big backyard where Johnson and LaVallee hope a dog will someday run around

realtor.com

How many offers did you make before you had one accepted?

Johnson: We put three earlier offers in.

LaVallee: They would be listed and the next day would be sold. The first three offers we put in were asking price, and I’m pretty sure everybody else offered more, and ours were never even considered.

Johnson: It was ridiculous. It was definitely a seller’s market, so you had to act really fast and you had to be really competitive. On our fourth offer, we ended up at $3,100 over asking. I felt like we had to fight for this house.

Johnson had to move into the new home without LaVallee's help.
Johnson had to move into the new home without LaVallee’s help.

Natalie Johnson

Were you competing with other offers for the house you bought?

LaVallee: There were multiple offers.

Johnson: Our real estate agent told us, “You should definitely write a letter and talk about how Kyle’s gone right now and you’re first-time home buyers and this one really clicked with you,” which it did. The second I walked in, it’s this adorable brick house, it’s super homey, it has a great yard. In the letter, we just talked about how all of that was so attractive to us as first-time home buyers, and we were really excited and could see ourselves in this home.

Our real estate agent suggested going in higher than asking, so we just rounded up to $115,000. He also suggested doing a higher due diligence payment—we usually did $200, but this time around we did $500. And the earnest fee we put in was $500 or $600.

After our offer was accepted, we knew it was going to be kind of difficult with the home inspection. They were already redoing the roof, which was a huge cost on their part, so asking for more was definitely going to be a challenge. So we didn’t ask for much.

LaVallee and Johnson are happy they stuck it out in a competitive seller's market and landed this home.
LaVallee and Johnson are happy they stuck it out in a competitive seller’s market and landed this home.

Natalie Johnson

What surprised you about the home-buying process?

Johnson: How fast it went, for me at least. Our first home tour was in April and then by June, we had found our house and the contracts were written up. I guess I was expecting it maybe to be double the time that it actually was, but houses were just turning over so fast, we had to act fast.

LaVallee: From my side, I thought it happened very slowly! I felt like so much was happening in between each step in the process. I had to be patient because I had so little control of the situation, other than just trying to stay involved and be a part of it.

Johnson: You never really think that when you’re married, you’re going to buy your first house while your husband is on the other side of the world. But we got through it.

Johnson and LaVallee (pictured on the right) on the day LaVallee returned from deployment
Johnson and LaVallee (pictured on the right) on the day LaVallee returned from deployment

Natalie Johnson

So Natalie, you were living in the house for a few months before Kyle returned from deployment in October to see it. What was that homecoming like?

Johnson: He came home a few days shy of the 365-day mark. We were anxious and excited. Several other families and I waited outside of a hangar on base, and soon after hearing their plane landing, we saw the group walking toward us and everyone start cheering and crying.

Because it was dark when we got home, Kyle couldn’t see the outside of the house much, or the “Welcome Home” decorations I hung up! But the moment he set foot in the front door, he just stood there and looked around with the biggest smile on his face.

I gave him the grand tour the next morning. He said it looked much bigger than what he saw on FaceTime. We celebrated with a home-cooked meal and the wine our agent gave us when we closed. It was really special.

LaVallee: I came home to a nice house. Natalie was worried I would come back to culture shock. But I’ve felt at home ever since I’ve been here.

Johnson decorated the house for LaVallee's return from deployment.
Johnson decorated the house for LaVallee’s return from deployment.

Natalie Johnson

After LaVallee came home, the two finally got to toast their first home with a bottle of wine, courtesy of their real estate agent.
After LaVallee came home, the two finally got to toast their first home with a bottle of wine, courtesy of their real estate agent.

Natalie Johnson

What’s your advice for aspiring first-time home buyers?

Johnson: I would say to go with your gut. Some of the houses you’ll tour are really logical to buy, but if they have a bad vibe or they’re just not really welcoming, then look at others. A healthy balance between logic and feeling is important.

LaVallee: We didn’t even know what we wanted until we saw five or six houses, so it’s definitely important to shop around and see what’s out there.

Johnson: We really didn’t know much. I told our real estate agent, “Hey, listen, we’re really going to need some guidance. We don’t know what things mean, we need you to break it down for us. You have to be patient with us.” I reached out to three different real estate agents, and Justin was the one who not only answered all my questions but was giving a ton of positive feedback. It was nice to have that encouragement, and it definitely made us more confident. You learn a lot by looking at houses, you learn a ton about yourself.

Johnson and LaVallee met in elementary school.
Johnson and LaVallee met in elementary school.

Natalie Johnson

Source: realtor.com

The 10 Most Tax-Friendly States for Middle-Class Families

Millions of American families move from one state to another each year. And, as you can imagine, there are many reasons why you might pull up stakes and relocate to a different state. You might move to start a new job, be closer to relatives, live in a warmer climate, or even – as a sign of the times – escape a coronavirus hotspot.

But no matter why you decide to pack your bags and move across state lines, do your homework first and check out the cost of living in your destination state. You’ll want to look at the cost of housing, of course, but make sure you consider the impact of state and local taxes on your bottom line, too. As our State-by-State Guide to Taxes on Middle-Class Families shows, state tax rates for the average American family are literally all over the map — and the difference between living in a high-tax or a low-tax state can be thousands of dollars each year, depending on your family’s tax situation.

To help you determine how big of a tax bite each state would take out of your hard-earned cash, we estimated the overall income, sales, and property tax burden in each state for a hypothetical married couple with two children, combined wages of $77,000, and $3,000 of other income. Based on our findings, we put together the following list of the 10 most tax-friendly states for middle-class families (the most-friendly state is listed at the end). If you’re taking a job in another state, or relocating your family for other reasons, you’ll want to check it out to see if your state taxes are likely to go up or down after the move.

See the final slide for a complete description of our ranking methodology and sources of information.

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10. Delaware

picture of Delaware with state nicknamepicture of Delaware with state nickname
  • State Income Tax Range: 2.2% (on taxable income from $2,001 to $5,000) to 6.6% (on taxable income above $60,000)
  • Average Combined State and Local Sales Tax Rate: No state or local sales tax
  • Median Property Tax Rate: $562 per $100,000 of assessed home value

Delaware’s income tax is relatively high for our hypothetical middle-class family. The state’s top income tax rate of 6.6% hits anyone with more than $60,000 of taxable income, which is a comparatively high rate for people in that income range.

However, low sales and property taxes earn Delaware a spot on our list of the most tax-friendly states for middle-class families. Sales taxes can’t get any lower than they are in The First State – there’s no sales tax in Delaware! So, you can shop ’til you drop in Delaware without paying a single penny of sales tax on your purchases.

When it comes to property taxes, Delaware has the seventh-lowest median property tax rate in the nation. As a result, the tax on a $300,000 home owned by our hypothetical family is estimated to be just $1,686 per year.

For more information on these and other Delaware state taxes, see the Delaware State Tax Guide for Middle-Class Families.

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9. Alaska

picture of Alaska with state nicknamepicture of Alaska with state nickname
  • State Income Tax Range: None
  • Average Combined State and Local Sales Tax Rate: 1.76%
  • Median Property Tax Rate: $1,182 per $100,000 of assessed home value

Your overall state tax burden is certainly going to be low if there’s no state income tax. That’s why six of the 10 states on this list don’t impose an income tax – and Alaska is the first of those states.

However, there’s more to the Last Frontier’s low tax burden than just the lack of an income tax. Alaska is one of five states with no state sales tax. If you’re heading north to Alaska, just remember that local sales taxes – up to 7.5% – might apply. But, according to the Tax Foundation, the statewide local sales tax average is only 1.76%.

Property taxes are middle-of-the-road in Alaska. If our hypothetical couple were to purchase a $300,000 home in the state, their estimated property tax bill would come to about $3,546 per year. That’s a little above the U.S. national average.

There’s one other thing about living in Alaska that’s worth noting: Alaska gives each legal resident who has lived in the state for a full year an annual “Permanent Fund Dividend.” The 2020 dividend was $992. (The highest payment ever was $2,072 in 2015.)

For more information on these and other Alaska state taxes, see the Alaska State Tax Guide for Middle-Class Families.

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8. North Dakota

picture of North Dakota with state nicknamepicture of North Dakota with state nickname
  • State Income Tax Range: 1.1% (on taxable income up to $40,125 for singles filers; up to $67,050 for joint filers) to 2.9% (on taxable income over $440,600)
  • Average Combined State and Local Sales Tax Rate: 6.96%
  • Median Property Tax Rate: $986 per $100,000 of assessed home value

Even though North Dakota imposes an income tax, its income tax rates are relatively minuscule, especially for mid-level earners. For our rankings, North Dakota’s income tax on our hypothetical family is the lowest of any state that imposes an income tax.

Sales taxes in the Peace Garden State are below average, too. The state rate is a modest 5%. Local governments can add as much as 3.5%. However, according to the Tax Foundation, the average combined state and local sales tax rate is 6.96%, which isn’t too bad.

While not dirt cheap, property taxes in North Dakota are quite reasonable. The tax on a $300,000 home is estimated to be $2,958 per year. That’s only slightly above the national property tax average for a home costing that much.

For more information on these and other North Dakota state taxes, see the North Dakota State Tax Guide for Middle-Class Families.

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7. Arizona

picture of Arizona with state nicknamepicture of Arizona with state nickname
  • State Income Tax Range: 2.59% (on taxable income up to $27,272 for single filers; up to $54,544 for joint filers) to 4.5% (on taxable income over $163,632 for single filers; over $327,263 for joint filers)
  • Average Combined State and Local Sales Tax Rate: 8.4%
  • Median Property Tax Rate: $617 per $100,000 of assessed home value

Low income taxes are what put the Grand Canyon State on this list. Middle-income families like our hypothetical taxpayers don’t pay the state’s lowest rate (2.59%), but at 3.34% they don’t pay much more.

Arizona residents benefit from low property taxes, too. The median property tax on a $300,000 home in the state is estimated to be only $1,851 per year, which is well below the U.S. average property tax for a home at that price point.

The state’s sales tax is higher than average, though. It starts with a 5.6% state sales taxes. However, all 15 counties levy additional taxes, as do many municipalities. As a result, the average combined state and local sales tax rate is 8.4%, which is the 11th-highest in the U.S., according to the Tax Foundation.

For more information on these and other Arizona state taxes, see the Arizona State Tax Guide for Middle-Class Families.

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6. California

picture of California with state nicknamepicture of California with state nickname
  • State Income Tax Range: 1% (on taxable income up to $8,932 for single filers; up to $17,864 for joint filers) to 13.3% (on taxable income over $1 million for single filers; over $1,198,024 for joint filers)
  • Average Combined State and Local Sales Tax Rate: 8.68%
  • Median Property Tax Rate: $729 per $100,000 of assessed home value

Wait, what? California is a tax-friendly state? Yes…for middle-class families. If you’re a rich person, California taxes will cut deep into your earnings. But for other people, the Golden State’s tax hit isn’t really all that bad.

Our hypothetical middle-class family’s income tax bill was the third-lowest among states that impose an income tax. Everyone makes a big deal about California’s 13.3% income tax rate, which is the highest top rate in the nation, but only a small percentage of Californians pay that rate. In fact, with 10 different tax rates, California has a very progressive income tax system. Our middle-income family, for instance, only fell into the state’s 6% tax bracket. That’s not too bad.

Although property taxes are sky high in Silicon Valley and certain other parts of the states, property taxes are below average for the state overall. For a $300,000 home in California, the statewide estimated property tax is only $2,187, which is the 16th-lowest amount in the country.

Sales tax is one area where Californians might pay more than residents of other states. The California state sales tax rate is 7.25%, which is the highest state rate in the nation. However, local sales taxes – up to 2.5% – aren’t very high. The Tax Foundation calculates the average combined state and local rate to be 8.68%, which is fairly low.

For more information on these and other California state taxes, see the California State Tax Guide for Middle-Class Families.

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5. Washington

picture of Washington with state nicknamepicture of Washington with state nickname
  • State Income Tax Range: None
  • Average Combined State and Local Sales Tax Rate: 9.23%
  • Median Property Tax Rate: $929 per $100,000 of assessed home value

The only reason why Washington makes this list is because it doesn’t have an income tax. Without that tax break, the Evergreen State certainly wouldn’t be considered one of the most taxpayer-friendly states in the nation.

Sales taxes in Washington are pretty high. The state sales tax rate is 6.5%, which is well above average. Plus, at 9.23%, the Tax Foundation’s average combined state and local sales tax rate for Washington is the fourth-highest in the country.

Property taxes in Washington are more modest. For a $300,000 home, the average tax bill in the state will run you about $2,787 per year. That’s a middle-of-the-pack amount when compared to other states.

For more information on these and other Washington state taxes, see the Washington State Tax Guide for Middle-Class Families.

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4. Tennessee

picture of Tennessee with state nicknamepicture of Tennessee with state nickname
  • State Income Tax Range: 1% on interest and dividends
  • Average Combined State and Local Sales Tax Rate: 9.55%
  • Median Property Tax Rate: $636 per $100,000 of assessed home value

There’s no broad-based income tax in the Volunteer State — only interest and dividends are subject to Tennessee’s limited income tax. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is also exempt from the 1% tax (for 2020), and it’s waived if you’re at least 100 years old. Plus, the tax is being phased out at a rate of 1% per year. So, 2020 is the last year the tax will be imposed.

Property taxes in Tennessee are reasonable, too. Our hypothetical middle-class family can expect to pay only about $1,908 per year for a $300,000 home. That’s well below the national average.

Tennessee sticks it to you when you’re shopping, though. It starts with a 7% state rate (plus 2.75% on part of the price from $1,600 to $3,200 of single items), but then local governments can tack on up to 2.75% more in taxes on each sale. At 9.55%, Tennessee’s average combined state and local sales tax rate is the highest in the nation, according to the Tax Foundation. Ouch!

For more information on these and other Tennessee state taxes, see the Tennessee State Tax Guide for Middle-Class Families.

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3. Florida

picture of Florida with state nicknamepicture of Florida with state nickname
  • State Income Tax Range: None
  • Average Combined State and Local Sales Tax Rate: 7.08%
  • Median Property Tax Rate: $830 per $100,000 of assessed home value

Florida has no income tax. That keeps the overall state and local tax burden down for middle-class families and everyone else. However, other taxes in the Sunshine State are just average when compared to other locations.

For instance, property taxes are right around the national average. For a $300,000 home in Florida, our hypothetical middle-class family’s estimated annual property tax bill is $2,490. That’s pretty much in the middle when compared to other states.

The state’s average combined state and local sales tax rate is middle-of-the-road, too. It’s 7.08%, according to the Tax Foundation. That’s based on a 6% state tax rate and local rates that can be as high as 2.5%.

For more information on these and other Florida state taxes, see the Florida State Tax Guide for Middle-Class Families.

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2. Nevada

picture of Nevada with state nicknamepicture of Nevada with state nickname
  • State Income Tax Range: None
  • Average Combined State and Local Sales Tax Rate: 8.23%
  • Median Property Tax Rate: $533 per $100,000 of assessed home value

Middle-class families in Nevada love the fact that there’s no income tax in the state. But that’s not the only tax perk for residents of the Silver State.

Nevada also has the fourth-lowest average property tax rates in the country. So, if our hypothetical middle-class family owned a $300,000 home in the state, they would only pay an estimated $1,599 in property taxes each year.

Sales taxes in Nevada aren’t so low, though. There’s a relatively high 6.85% state sales tax rate. Then, when you add in local taxes, the average combined state and local sales tax rate shoots up to 8.23%, which is the 13th-highest in the country.

For more information on these and other Nevada state taxes, see the Nevada State Tax Guide for Middle-Class Families.

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1. Wyoming

picture of Wyoming with state nicknamepicture of Wyoming with state nickname
  • State Income Tax Range: None
  • Average Combined State and Local Sales Tax Rate: 5.33%
  • Median Property Tax Rate: $575 per $100,000 of assessed home value

Congratulations, Wyoming – you’re the most tax-friendly state for middle-class families! One reason why Wyoming earns this distinction is because generous revenues from mineral and energy extraction continue to flow into the state. That allows the Equality State to keep taxes on residents low across the board.

There’s no income tax in Wyoming. As with many of the other states on this list, that’s the driving force behind the state’s favorable ranking. However, what makes Wyoming unique is that it also has both low sales taxes and low property taxes.

The state sales tax rate in Wyoming is a modest 4%. Municipalities can tack on up to 2% more, which isn’t that much. As a result, the state’s combined state and average local sales tax rate is the eighth-lowest in the country, according to the Tax Foundation.

People who move to these parts like to own a lot of land, and low property taxes make that dream affordable. The property tax on our hypothetical middle-class family’s $300,000 home in Wyoming would be about $1,725, which is tied the 10th-lowest property tax amount in our rankings.

For more information on these and other Wyoming state taxes, see the Wyoming State Tax Guide for Middle-Class Families.

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About Our Methodology

picture of chalkboard full of calculationspicture of chalkboard full of calculations

Our tax maps and related tax content include data from a wide range of sources. To generate our rankings, we created a metric to compare the tax burden in all 50 states and the District of Columbia.

Data sources

Income tax – Our income tax information comes from each state’s tax agency. Income tax forms and instructions were also used. See more about how we calculated the income tax for our hypothetical family below under “Ranking method.”

Property tax – The median property tax rate is based on the median property taxes paid and the median home value in each state for 2019 (the most recent year available). The data comes from the U.S. Census Bureau.

Sales tax – State sales tax rates are from each state’s tax agency. We also cite the Tax Foundation’s figure for average combined sales tax, which is a population-weighted average of state and local sales taxes. In states that let local governments add sales taxes, this gives an estimate of what most people in a given state actually pay, as those rates can vary widely.

Ranking method

The “tax-friendliness” of a state depends on the sum of income, sales and property tax paid by our hypothetical family.

To determine income taxes due, we prepared returns for a married couple with two dependent children, an earned income of $77,000, long-term capital gains of $1,500, qualified dividends of $1,000, and taxable interest of $500. They had $4,500 in state income taxes withheld from their wages. They also paid $3,000 in real estate taxes, paid $2,800 in mortgage interest, and donated $2,300 (cash and property) to charity. Since some states have local income taxes, we domiciled our filers in each state’s capital, from Juneau to Cheyenne. We calculated these 2019 returns using software from Credit Karma.

How much they paid in sales taxes was calculated using the IRS’ Sales Tax Calculator, which is localized to zip code. To determine those, we used Zillow to determine zip codes with housing inventory close to our sample assessed value.

How much the hypothetical family paid (and deducted on their income tax return) in property taxes was calculated by assuming a residence with $300,000 assessed value and then applying each state’s median property tax rate to that amount.

Source: kiplinger.com

Stephanie Creary: Making the Case for Diversity on Corporate Boards

Stephanie Creary is assistant professor of management at the Wharton School at the University of Pennsylvania, where she is an identity and diversity scholar. She has researched workplace diversity practices at a variety of organizations, including corporations, hospitals and the U.S. Army.

Why should investors care whether a company has a diverse board of directors? McKinsey & Co., a management consulting firm, has found that companies with diverse boards outperform their peers. There’s also a lot of academic research that has analyzed the relationship between the composition of top management teams and financial performance. For example, a recent study from the University of Texas at Dallas found that firms that were diverse in upper and lower management performed better than other firms. Their workers were more pro­ductive, too. That’s good for the bottom line.

Won’t some companies be tempted to add a token woman or minority to their board? How can that be avoided? First, if you’re a company, you don’t just pick any person of color or woman. You pick people you believe in who will help contribute to the gaps in expertise that you have. And you don’t pigeonhole them into being a single-issue director.

Next, you need to have other players hold corporations accountable. For example, State Street, a major investment management firm, has said that it will vote against board members of companies that fail to disclose the racial and ethnic makeup of their boards. And Nasdaq recently proposed requiring that every company listed on its stock exchange have at least one woman on its board and one board member who is an underrepresented minority or LBGTQ. The firms that don’t meet the standard will be required to explain why they can’t. That’s holding companies accountable.

In 2019, the Business Round­table, which is made up of the chief executives of the largest U.S. companies, issued a statement encouraging members to take into account the interests of employees, customers and their communities when making business decisions. Have major corporations embraced this philosophy, particularly when it comes to minorities? Yes they have, but one size doesn’t fit all. Target is a good example. After the protests in Minneapolis over the death of George Floyd, the company decided to reopen a store that was damaged by the riots. Target’s approach was to have conversations with people in the community, not just community leaders, about how the store could address their needs. JPMorgan Chase and Citigroup announced last fall that they are changing their lending practices to make sure that people of color have access to mortgages. JPMorgan Chase also said it’s going to tackle the lack of diversity in its own workforce.

When can investors expect to see the results of these initiatives? Investors tend to measure company progress quarterly, but that’s very short-term. A better benchmark is one year from an announcement that a company has changed the composition of its board or has made a com­mitment to any other social justice movement.

Source: kiplinger.com

What Could 2021 Hold for Your Finances?

Last year put a lot of our financial strategies to the test. Volatility that plagued the markets for the past few years was exacerbated by the COVID-19 pandemic, which is still raging nearly 12 months later. Many people watched as their investments and retirement savings wildly fluctuated, while others dealt with more pressing issues, such as unexpected unemployment and tapping into emergency funds just to get by.

I think it’s safe to say that many of us are ready to leave 2020 – and the financial, mental and physical strains it brought – behind. But according to a recent Allianz Life study, while many of us would like to move on, the vast majority of Americans expect market volatility to continue this year. At the same time, they are trying to navigate the lingering financial impacts of COVID-19.

The study found that Americans are worried that markets will retreat from their recent highs, with 44% saying they feel the market hasn’t bottomed out yet, and nearly three-quarters (72%) believing the markets will continue to be very volatile in 2021.

This doesn’t come as a surprise since volatility and market risks have become the new norm. But when you add in the financial and economic challenges from the COVID-19 pandemic, like the fact that over one-third (34%) say they have had to dip into their retirement savings because of the impact COVID-19 has had on the economy, it starts to paint a dire picture.

So what does this mean as we look to 2021? For many, it could mean taking lessons learned from the past year and applying them to financial and retirement strategies to help mitigate some of those risks down the road.

Looking ahead

As the pandemic drags on, over half (53%) of respondents say COVID-19 is having a negative effect on financial retirement plans. For this group, it’s important to maintain focus on addressing what we can control, and tweaking your retirement strategy to account for these effects. Managing some of those risks to your retirement strategy in 2021 could mean diversifying your portfolio with the help of a financial professional, or exploring protection products such as certain types of annuities that can help protect your money when the market drops, but still offer some growth potential for when indices continue to climb as we have seen over the past few months.

The silver lining here is that despite many of the challenges, 67% say the impacts of COVID-19 on the economy have made them rethink how to protect their retirement savings. There is always room for improvement in a financial strategy, and last year is a reminder that those black swan events do happen, so taking steps to address risks now can be smart.

A focus on finances

However, as we enter a new year, over half (57%) of people are choosing to focus on their health and wellness instead of their finances. Given the specific health challenges drive by the COVID-19 pandemic, this is certainly understandable. But does it mean that taking care of finances is going to take a backseat?

According to the New Year’s Resolutions Study from Allianz Life, just 13% of people are including financial planning as a resolution in 2021 – an 11-year low. This can pose a serious risk to a financial strategy, particularly one that was put through the wringer last year.

Even if you plan to focus on health and wellness in 2021, don’t forget about your financial and retirement strategies. Making small adjustments in respect to your current situation can make a big difference in the long term. Perhaps this means adding to an emergency fund if you’re able, revisiting your saving strategy for health care expenses in retirement, or even revising your retirement timeline. Financial professionals can be a huge benefit in helping people identify risks to their finances and prepare accordingly.

Bright economic spots ahead?

Despite the current harsh realities of the pandemic on top of all that 2020 (and 2021 thus far) has delivered, there is still some hope for what 2021 could bring. Two-thirds of Americans (66%) say they think the economy will improve in 2021, and another 67% say they think their financial situation will ultimately improve.

Perhaps it speaks to a tendency toward optimism, or maybe people just need something to look forward to, but whatever this new year will bring, a renewed focus on finances can benefit nearly everyone – no matter how your financial situation was impacted last year.

Allianz Life is a leading provider of retirement solutions including annuities and life insurance. 

Guarantees are backed by the financial strength and claims paying ability of the issuing company. Diversification does not ensure a profit or guarantee against a loss.

Vice President, Advanced Markets, Allianz Life

Kelly LaVigne is vice president of advanced markets for Allianz Life Insurance Co., where he is responsible for the development of programs that assist financial professionals in serving clients with retirement, estate planning and tax-related strategies.

Source: kiplinger.com

Buying a Home? Plan for These Hidden Costs

Get those rainy day funds in order — you’re going to need them.

You’re excited because you just found the perfect home. The neighborhood is great, the house is charming and the price is right.

But the asking price is just the beginning. Be prepared for additional — and often unexpected — home-buying costs that can catch buyers unaware and quickly leave you underwater on your new home.

Expect the unexpected

For almost every person who buys a home, the spending doesn’t stop with the down payment. Homeowners insurance and closing costs, like appraisal and lender fees, are typically easy to plan for because they’re lumped into the home-buying process, but most costs beyond those vary.

The previous owners of your home are the biggest factor affecting your move-in costs. If they take the refrigerator when they move out, you’ll have to buy one to replace it. The same goes for any large appliance.

And while these may seem like a small purchase compared to buying a home, appliances quickly add up — especially if you just spent most of your cash on a down payment.

You’ll also be on the hook for any immediate improvements the home needs, unless you negotiate them as part of your home purchase agreement.

Unfortunately, these costs are the least hidden of those you may encounter.

When purchasing a home, definitely hire a home inspector (this costs money too!) to ensure the home isn’t going to collapse the next time it rains. Inspectors look for bad electrical wiring, weak foundations, wood rot and other hidden problems you may not find on your own.

Worse still, these problems are rarely covered by home insurance. If an inspector discovers a serious problem, you’ll then have to decide if you still want to purchase the home. Either way, you’ll be out the cost of hiring the inspector.

Consider the creature comforts

Another cost is your own comfort. There are a number of smaller considerations you may not think about until after you move in.

Are you used to having cable? If so, is your new home wired for cable? It’s much harder to watch a technician crawling around punching holes in your walls when you own those walls.

And if you’re moving from the world of renting to the world of homeownership, you’ll probably be faced with much higher utility bills. Further, you could find yourself paying for utilities once covered by a landlord, like water and garbage pickup.

Plan ahead

The best way to prepare for the unknown and unexpected is through research and planning. This starts with budgeting before house hunting and throughout your search.

Look at homes in your budget that need improvements, and then research how much those improvements could cost. Nothing is worse than buying a home thinking you can fix the yard for a few hundred dollars and then realizing it will cost thousands.

There’s really no limit to how prepared you can be. Say you find a nice home that’s priced lower than others in the area because of its age. You may save money on the list price, but with an older house, you could be slapped with a much higher home insurance payment, making the house more expensive in the long run.

This is where preparation comes in. Research home insurance and property prices in the areas you’re considering to make more educated decisions before you ever make that first offer.

Clearly define how much you intend to put toward your down payment, and then look at how much cash that leaves for improvements and minor costs, like changing the locks. That way, when you find a house at the high end of your range, you’ll know to walk away if it requires a new washer and dryer or HVAC system upgrade.

Establish a rough estimate for as many costs as you can think of, and be extremely critical of homes at the top of your budget — otherwise, you could easily end up being house-poor.

Know your budget and plan ahead. Buying a home is a lot less scary when you know what you’re getting into.

Top featured photo from Offset.

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Originally published August 2016.

Source: zillow.com

5 Myths About Transitioning From Renter to Homeowner

Making the leap from being a renter to becoming a homeowner is a process that includes taking stock of your financial situation and determining whether you’re ready for such a massive responsibility. For most people, the primary question is affordability. Do you have enough cash in the bank to fund a down payment, or do you have a credit score high enough to qualify you for a home loan? But there are other considerations, too—and plenty of misconceptions and myths that could keep you from making that first step.

Below, our experts weigh in on why some situations that may seem like roadblocks are actually not as daunting as they appear.

1. Buying a home means heavy debt

Some may argue that continuing to rent can spare you from taking on heavy debt. But owning a house offers advantages.

“Buying a home and using a typical loan would be spread out over 20 to 30 years. But if you can make one extra payment a year or make bimonthly payments instead, you can shed up to seven years from that long-term loan,” says Jesse McManus, a real estate agent for Big Block Realty in San Diego, CA.

Plus, as you pay your mortgage, you gain equity in the home and create an asset that can be used when needed, such as paying off debt or even buying a second home.

“Currently, mortgage interests rates are at their lowest point in history, so … it’s a great time to borrow money,” McManus says.

2. At least a 20% down payment is needed to buy a home

“Contrary to popular belief, a 20% down payment is not required to purchase a home,” says Natalie Klinefelter, broker/owner of the Legacy Real Estate Co. in San Diego, CA. “There are several low down payment options available to all types of buyers.”

These are as low as 0% down for Veterans Affairs loans to 5% for conventional loans.

One of the main reasons buyers assume they must put down 20% is that without a 20% down payment, buyers typically face private mortgage insurance payments that add to the monthly loan payment.

“The good news is once 20% equity is reached in a home, the buyer can eliminate PMI. This is usually accomplished by refinancing their loan, ultimately lowering their original payment that included PMI,” says Klinefelter. “Selecting the right loan type for a buyer’s needs and the property condition is essential before purchasing a home.”

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Watch: 5 Things First-Time Home Buyers Must Know

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3. Your credit score needs to be perfect

Having a credit score at or above 660 looks great to mortgage lenders, but if yours is lagging, there’s still hope.

“Credit score and history play a significant role in a buyer’s ability to obtain a home loan, but it doesn’t mean a buyer needs squeaky-clean credit. There are many loan solutions for buyers who have a lower than the ideal credit score,” says Klinefelter.

She says government-backed loans insured by the Federal Housing Administration have lower credit and income requirements than most conventional loans.

“A lower down payment is also a benefit of FHA loans. Lenders often work with home buyers upfront to discuss how to improve their credit to obtain a loan most suitable for their needs and financial situation,” says Klinefelter.

McManus says buyers building credit can also use a home loan to bolster their scores and create a foundation for future borrowing and creditworthiness.

4. Now is a bad time to buy

Buying a home at the right time—during a buyer’s market or when interest rates are low—is considered a smart money move. But don’t let the fear of buying at the “wrong time” stop you from moving forward. If you feel like you’ve found a good deal, experts say there is truly no bad time to buy a home.

“The famous saying in real estate is ‘I don’t have a crystal ball,’ meaning no one can predict exactly where the market will be at a given time. If a buyer stays within their means and has a financial contingency plan in place if the market adjusts over time, it is the right time to buy,” says Klinefelter.

5. You’ll be stuck and can’t relocate

Some people may be hesitant to buy because it means staying put in the same location.

“I always advise my clients that they should plan to stay in a newly purchased home for a minimum of three years,” says McManus. “You can ride out most market swings if they happen, and it also gives you a sense of connection to your new space.”

In a healthy market, McManus says homeowners will likely be able to sell the home within a year or two if they need to move, or they can consider renting out the property.

“There is always a way out of a real estate asset; knowing how and when to exit is the key,” says Klinefelter.

Source: realtor.com