Since I am a licensed REALTOR® in both Florida and Alabama, buyers and investors ask me the same question almost daily…
“IS IT CHEAPER TO LIVE IN ALABAMA OR FLORIDA?”
So, I decided to do some research to make sure I was giving my clients the most accurate advice. The bottom line is – the answer may be a little different depending on your personal situation and age - but in most cases, the answer is almost always going to be…
IT’S (A LITTLE) CHEAPER TO LIVE IN ALABAMA.
Florida
The chart below will show that Florida is by far one of the most tax-friendly states in the country since Florida has NO income taxes. But, it’s property tax rate is only slightly below the national average. And, you’ll get a lot (and I mean a LOT) more house for your money in Alabama.
Florida is most attractive for retirees (over age 65), as there are no state taxes on social security benefits, pensions, IRAs, 401(k)s and other retirement incomes. Even food, prescription drugs and non-prescription drugs are exempt from taxation in Florida. The regular sales tax rate is 6%.
So how does Florida do it? Businesses pay most of the state and local taxes (over 53%).
Florida’s average real property tax rate is 0.98%, which is slightly lower than the U.S. average of 1.08%. The average Florida homeowner pays around $1,700 each year in real property taxes, depending on the county where they reside.
Alabama
They refer to it at "Sweet Home Alabama" for a reason...Alabama is second only to Hawaii for the lowest property taxes in the country! Retirees who own a home in Alabama benefit from some of the lowest property tax rates in the country. Alabama’s median effective property tax rate is 3.33% (i.e., $3.33 per $1,000 of property value), well below the national median of 10.35. Alabama's median value of real estate tax is $398, whereas the national median is $1,917.
Like Florida – Alabama’s social security and pensions are not taxed and people over the age of 65 do not pay state property taxes. However, withdrawals from retirement accounts are fully taxed.
The downside is that with only 3 tax brackets, it doesn’t take much to land in the state’s highest tax bracket. And there are no sales tax breaks on food either. However, Alabama does allow you to deduct your federal income taxes, (and payroll taxes) from your state income. The Alabama state sales tax rate is currently 4%, yet depending on local municipalities, the total tax rate can be as high as 11% (the 5th highest in the U.S.).
Prescription drugs are not taxed, but vehicles are with a 2% rate based on the value. And what’s important to note especially in the tourist areas on the southern Alabama beaches, is the exorbitant taxes on what economists refer to as “sin taxes”. For example, liquor is taxed as much as $19 per gallon (in comparison to Florida’s $6.50 per gallon). Even beer is taxed at .58 per gallon in Florida and $1.05 in Alabama.
But perhaps the most important factor to consider is the overall median home cost between Florida and Alabama. For example, Birmingham, Alabama’s cost of living index is 28.8% cheaper than that of Orlando, Florida. And the overall median home cost is 73% cheaper in Alabama. So, you get a lot more house for your buck, AND you have to pay the lowest property taxes in the country for it.
As an investor - there's no question, Alabama is going to save you money overall and give you the best return on your investment. If you are a retiree, you may save a little on income tax in Florida, but depending on the size of your home and the amount of your retirement income - it may be a wash. It really boils down to the kind of retirement funds you have, since social security and pensions are not taxed, nor do people over the age of 65 pay state property taxes in either state, but Alabama does fully tax withdrawls from retirement accounts.
Your accountant can definitely help you decide based on the state and county where you'd like to reside. There are so many benefits to living along the beautiful Gulf Coast in either state, and I would love to help you find your next investment or retirement home. So connect with me and let's start looking!
Sources:
https://www.bestplaces.net/cost-of-living/orlando-fl/birmingham-al/125000
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