Question: Every day on the A.M. radio, people express their fear over the pending tax hikes resulting from the looming election of a liberal democrat governor. Many of my friends recently moved out of Massachusetts to New Hampshire because of our high cost of living. They are thrilled to live in a state without income tax or sales tax. Is New Hampshire truly a tax-free utopia? Should I move there to save money too?
Answer: Never believe everything you hear on the radio, or anything your buddies tell you. While it is safe to wager that Deval Patrick will be elected the next governor of the Commonwealth, the resulting effect on our cost of living is yet unknown. Regardless of your political affiliation, does your fear necessitate an exodus to New Hampshire? Let’s look at some real estate related costs your friends may have neglected to tell you.
True: New Hampshire residents pay no state income tax. Compared to the 5.3% Massachusetts income tax rate, this is a valuable savings. However, New Hampshire derives a great deal of revenue from its significantly higher property taxes. For example, the City of Nashua charges a property tax rate of $16.32 per thousand as opposed to the City of Lowell’s $10.07. When calculated against a home with an assessed value of $400,000.00, Nashua will charge $6,528.00 per year versus Lowell’s $4,028.00. This amounts to a $2,500.00 annual difference between the states.
New Hampshire’s higher property tax may or may not exceed your state income tax costs. However, consider the fact that your income tax costs rise and fall with your family income. If your wife decides to take time off work to raise your family, your income tax burden will decrease along with your overall income. In New Hampshire, your property tax is fixed regardless of your income level. Good luck to your friends if they their job.
Also note that a buyer in New Hampshire shares the obligation to pay deed stamp transfer taxes at the rate of $7.50 per thousand. In our example, a $400,000 home incurs a $3,000 cost, split evenly among the parties. Additionally, Massachusetts deed stamp taxes are borne solely by the seller. At the rate of $4.56 per thousand, our example sale results in a cost of $1,824.00. Overall, you will pay $3,324.00 just in transfer taxes. Does the risk of higher taxes over the next four years justify such a cost?
Attorney James Haroutunian practices real estate law, estate planning and small business formation in Billerica at 790 Boston Road. Contact him with questions at 978-671-0711, prioritylaw.com, hlawoffice.com, or email him at firstname.lastname@example.org.