Is Texas A Good State To Move To? Texas Taxes Explained

Retiring in Texas: What Retirees Need to Know About Taxes, Property Costs, and Living Expenses

By Ryan Firth

Texas is a popular retirement destination for many reasons, including its warm climate, relatively affordable cost of living, and lack of a state income tax. However, retirees considering a move should understand the full Texas tax picture, particularly property taxes and sales taxes, which can materially affect retirement cash flow.

Property Taxes in Texas

Property tax rates in Texas are set by local governments and are higher than in most other states. For retirees who own homes, especially higher-value properties, property taxes can be a meaningful annual expense.

That said, Texas housing costs remain moderate. As of September 2023, the median home price in Texas was approximately $348,000, compared with a national median of $412,000. In addition, Texas offers generous statewide exemptions that help offset higher local property tax rates.

Texas Homestead Exemptions

Texas provides a homestead exemption for homeowners who own and occupy their home as a primary residence. Key provisions include:

$140,000 school district exemption for all homeowners (up from $100,000)

Additional $60,000 exemption for homeowners aged 65 or older

Total school district exemption for seniors: $200,000

These exemptions significantly reduce the taxable value of a home for school district property taxes.

Senior Property Tax Freeze

Texas also offers a senior property tax freeze. Once a homeowner qualifies for the age 65 or older exemption, the school district portion of property taxes is frozen at the amount paid in the year of qualification. That amount becomes the tax ceiling for as long as the homeowner owns and occupies the home.

One exception applies if substantial improvements are made to the property, such as adding a new room or structure. In that case, the tax ceiling may be adjusted upward to reflect the added value.

Sales Taxes in Texas

Texas imposes a 6.25% state sales tax. Local jurisdictions—including cities, counties, and special-purpose districts—may add up to 2%, bringing the maximum combined rate to 8.25%.

Certain essentials are exempt, including:

Groceries

Prescription drugs

Retirees living on fixed incomes may also benefit from senior discount programs, which many retailers offer to customers aged 65 or older.

Federal Tax Interaction and SALT Deduction Changes

Property taxes and sales taxes may be deductible on a retiree’s federal income tax return, subject to the state and local tax (SALT) deduction limit.

Under the One Big Beautiful Bill Act (OBBBA):

The SALT deduction cap increased from $10,000 to $40,000 in 2025

For the 2026 tax year, the cap is $40,400 ($20,200 for married filing separately)

This higher limit applies to taxpayers with modified adjusted gross income (MAGI) below $505,000. Above that threshold, the deduction phases down at a rate of 30 cents per dollar of excess income, with a guaranteed minimum deduction of $10,000.

The OBBBA also made the higher standard deduction permanent. For 2026:

$16,100 for single filers

$32,200 for married filing jointly

Because these standard deductions are substantial, many retirees may still benefit more from taking the standard deduction rather than itemizing property and sales taxes.

Weighing the Tradeoffs of Retiring in Texas

For many retirees, the lack of state income tax—meaning no state tax on Social Security, pensions, RMDs, or retirement account withdrawals—can offset higher property and sales taxes.

Cost of living remains a major advantage, though healthcare access deserves careful consideration. Texas offers world-class medical facilities in urban areas such as Houston and Dallas, while rural areas may require longer travel times for medical care. Retirees must balance lower housing costs in rural regions against access to healthcare services.

Final Thoughts

Texas can be an excellent retirement destination, particularly for retirees seeking tax efficiency and affordability. However, understanding how property taxes, sales taxes, and federal deductions interact is essential to evaluating the true cost of retirement in the Lone Star State.

Planning for retirement is complex, no matter where you live. Having a financial professional involved can help retirees navigate tax strategy, healthcare costs, and long-term planning decisions with greater confidence.

Ryan Firth, CPA/PFS, CFP®, is the founder of Mercer Street Company in Bellaire, Texas, and a member of the AICPA’s PFP Champions task force.