Delaware Retirement Tax Friendliness

Delaware Retirement Taxes

Many retirees in the Northeast and Mid-Atlantic States move to places like Florida and Texas upon retirement, seeking warmer weather and lower taxes. While there’s no cure for the Northeast’s colder weather, seniors who want to reduce their tax burden may not need to look quite so far south.

Instead, they might consider Delaware. The First State has no sales tax and property tax rates that are among the lowest in the country. It also does not tax Social Security income and grants significant deductions for other types of retirement income.

A financial advisor can help you plan for retirement and other financial goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Is Delaware tax-friendly for retirees?

Delaware is one of just four states with no sales tax at the state or local level. Furthermore, it has low property tax rate when compared with the majority of states (0.58%), and it doesn't tax Social Security income. If that wasn't enough, Delaware doesn't have an estate or inheritance tax, and it provides a deduction of up to $12,500 on income from pensions or retirement savings accounts.

Is Social Security taxable in Delaware?

Delaware fully exempts all Social Security income from its state income tax.

Are other forms of retirement income taxable in Delaware?

Yes, but they are also eligible for a deduction. The deduction varies depending on the age of the taxpayer. For taxpayers less than 60 years old, the deduction is $2,000 per person. For taxpayers age 60 or older, the deduction is $12,500.

The deduction applies to the combined total of all retirement income from pensions and retirement accounts like a 401(k) or IRA. If you are 65 or older and have $12,500 or less in income from these sources, you will not pay income tax on them.

Any retirement income in excess of the deduction will be included with other sources of income as part of your taxable income, to which Delaware’s state tax rates apply. The table below shows income tax rates in Delaware.

How high are property taxes in Delaware?

Delaware’s average effective property tax rate is a mere 0.58%. That means a homeowner could expect to pay $1,570 in taxes on a median home value of $269,700, which is $12,200 under the U.S. home median value ($281,900). 

Despite being high on a countrywide level, home values in Delaware are low when compared with other places in the Mid-Atlantic, like Maryland, Virginia and the District of Columbia.

What is the Delaware senior school property tax credit?

The senior school property tax credit is a form of property tax relief for seniors in Delaware. To qualify, you must be age 65 or older and own a home in the state as your primary residence. The credit is equal to 50% of school property taxes, up to a maximum of $500 per year.

How high are sales taxes in Delaware?

There is no sales tax in Delaware. That’s right, all Delaware purchases are tax-free. For many seniors, that could mean savings of hundreds of dollars per year on things like clothing, food, entertainment and medicine.

What other Delaware taxes should I be concerned about?

As of Jan. 1, 2018, Delaware has repealed its estate tax. So as long as your estate is under the 2024 federal threshold of $13.61 million ($12.92 million for 2023), you're in the clear.

Capital gains in Delaware are also subject to tax. Long-term and short-term capital gains are taxed as regular personal income, at the rates shown in the income tax bracket table above. This is important to keep in mind for seniors who are planning on income from real estate sales or other types of investment income outside of retirement accounts.