Active retirement communities are springing up quickly all around Virginia, providing retirees with a range of options in locations from the Tidewater to the Blue Ridge Mountains. Virginia’s proximity to major eastern cities, its great variety of places to live, its natural beauty, and its cultural and educational opportunities make it an attractive retirement destination. An article in U.S. News & World Report describes the community at Reston, Virginia as one of the healthiest places to retire, with its pedestrian-accessible layout, European-style plazas, outdoor concerts, farmers’ markets, and many sports facilities.
In terms of cost of living, Virginia comes out about average, depending on where you decide to settle. According to Top Retirements there is a large range of home prices, which can reach $440,000 in the Virginia suburbs of Washington. But in Richmond home prices are closer to the national median. And the cost of living index in Richmond is 99 compared to the national average of 100. The Tax Foundation ranked Virginia 18th among the states in terms of the overall state and local tax burden for 2008, with a total tax rate very close to the national average.
Virginia state income tax
Virginia has a state income tax with progressive rates starting at 2% on the first $3,000 of taxable income and extending up to 5.75% on taxable income over $17,000. For married taxpayers filing jointly, the rates are the same but the income brackets are doubled. You can claim a personal exemption of $930 each for yourself, your spouse, and your dependents. If you or your spouse is age 65 or older, or blind, you can claim an additional $800 exemption. You can itemize deductions or claim the standard deduction of $3,000 for single or married filing separately, and $6,000 for married filing jointly. If you itemize deductions on your federal return, you also have to itemize on your Virginia return.
If you are age 65 or older, you may be eligible for an age deduction of up to $12,000. The amount of the deduction you can claim depends on your age, filing status and income. If you are 70 or older you can claim the full deduction. If you are 65 or older but younger than 70, the deduction is reduced by one dollar for each dollar that your federal adjusted gross income, reduced by your social security and tier 1 railroad retirement benefits, exceeds $50,000 if you file as single, or $75,000 if you are married filing either jointly or separately.
Social security and tier 1 railroad retirement benefits are exempt from tax in Virginia. If you have to include any of these benefits as income on your federal tax return, you can subtract that amount on your Virginia state income tax return. Other types of pension income are subject to the Virginia state income tax, even if you receive the pension from another state. In that case, the other state cannot tax you on the same pension income. Taxation of military retirement pay in Virginia generally follows the same rules as for federal income tax purposes.
You can claim a deduction on your Virginia state income tax return for the cost of long-term health care insurance premiums, provided you did not claim them as an itemized deduction on your federal tax return. You can also claim the Livable Home Tax Credit if you purchase supplies and other items to retrofit your existing home, or incorporate special features into new construction to improve accessibility and/or visitability. The credit is up to a maximum of $500 per year.
Virginia property taxes
Property taxes in Virginia are levied at the local level by the cities, counties and towns. The assessed value of real estate for property tax purposes is 100% of the fair market value. The property tax rates are expressed as an amount per $100 of assessed value and vary by location. For example, according to Virginia Realty & Relocation, the rate in the city of Richmond is $1.20. So, if you have a home in Richmond with a fair market value of $200,000, the annual property taxes would be $200,000 x 1.20/100 = $2,400.
According to the Retirement Living Information Center, counties, cities and towns in Virginia can enact programs that allow exemption or deferral of property taxes on homes occupied by persons age 65 or older. Certain requirements may have to be met, such as annual family income, which is generally limited to $50,000.
Virginia sales tax
Virginia has a 4% state sales tax, plus an additional 1% local tax, resulting in a combined tax of 5% on most purchases in Virginia. Prescription and non-prescription drugs are exempt. Food purchased for consumption in your home is subject to a 1.5% sales tax.
Purchases you make outside the state that you bring into Virginia, including catalog purchases, items bought over the Internet or on cable television shopping channels, or purchases out of state that are delivered in Virginia are subject to a use tax. The use tax rate is 5% on non-food purchases and 4% on purchases of food for home consumption. If you made more than $100 in these types of purchases during the year, you report and pay the individual use tax by filing Form CU-7 by May 1st, or by reporting the tax on line 21 of Schedule ADJ, which is an attachment to your Virginia state income tax return on Form 760.
Virginia inheritance and estate tax
There is no inheritance tax in Virginia. The estate tax was repealed on the estates of decedents whose date of death is on or after July 1, 2007.
Bankrate – State Tax Roundup – Virginia
Best Healthy Places to Retire: Reston, Virginia, by Candice Novak and Matthew Bandyk – U.S. News & World Report
Retire in Virginia in the best retirement communities – Top Retirements
Virginia Resident Individual Income Tax Booklet – Virginia Department of Taxation
Real Estate Tax Rates – Virginia Realty & Relocation
Retirement Living Information Center – Taxes by State – Virginia
Virginia’s State and Local Tax Burden, 1977-2008 – Tax Foundation