Retiree Taxes In Oregon (Portland, Salem: sales, real estate, rentals)

[Larry Caldwell]

There was a comment about retirement taxes in the fly fishing thread. It deserves a separate thread. As a tax paying retiree, there are definitely some owies in Oregon. Oregon has an income tax but no sales tax, so your spending habits make a big difference.

First, the good news. Oregon does not tax Social Security at all.

Property taxes are all local, and vary depending on where you live. Generally they are pretty modest, because the state has a maximum 3% a year increase in place, but bond issues are not subject to the limitation. You vote for them and they go on your tax bill until they are paid off.

There are a couple of bright points. If you are over 65, you can defer your property taxes until your property is sold. The taxes become a lien against the property. This is not available if you have a reverse mortgage. The other bright point is if you are a disabled veteran. The state will pay your property taxes up to the percentage the VA says you are disabled. If the VA says you have a 20% disability, the state will pay 20% of your property taxes.

Now for the bad news. Capital gains are taxed as ordinary income. Ouch. Between the state and feds, you lose a big hunk of your capital gains. This is a big deal if you own stocks, real estate, or timber. Timber taxes are ameliorated by the fact that you can write off all management costs as a loss for decades. It's one of the few investments that the IRS will allow that on with no income to offset.

Your tax sheltered accounts also get taxed as income as you take distributions. If you are thinking of moving to Oregon, roll your 401k into a Roth before you move.

You get all the write-offs and deductions from your federal 1040, plus you get to deduct federal income taxes, to a limit that I forget. It's indexed to inflation and changes every year. The effective tax rate for most Oregonians is about 6% of gross income before adjustments.

In return, buy a car? No sales tax. Buy appliances? No sales tax. Remodel your house? No sales tax. If you spend most of your income, Oregon has a pretty low tax burden compared to other states. If you have a big income that you normally reinvest, you will do better in a sales tax only state like Washington.

[rbwpi]

Good, solid, correct info/advice.

[ABQ2015]

Another tax break is for those who have federal pensions and a Thrift Savings Plan (TSP or federal employee 401k). If you had federal service before October 1, 1991, you are allowed to deduct the portion of your taxable federal pension earned before that date. Through researching this, I have found that this also applies to that portion of the TSP. So if 20% of your service months were before October 1, 1991, your can deduct 20% of pension and TSP income. I suppose state of Oregon retirees may have a similar tax break?

[NW4me]

The good news is, Social Security is not taxed. The bad news is, there's a 9% marginal tax rate,
and it kicks in at only $8450 of taxable income (for a single person). The other bad news is,
pensions other than federal (and maybe Oregon state government) don't get a tax break, AFAIK.
This page Oregon Income Tax Rates for 2018 says that Oregon income taxes are the highest in the country,
for a hypothetical average family. OTOH, there's no sales tax, but I suspect most of us pensioners would do better
with a sales tax and no income tax, such as Washington State features. You may want to live in Oregon anyway
(as I do), but make sure you understand the tax implications before moving.

[Larry Caldwell]

I covered that. The 9% income tax is not on your gross income, it's on your federal taxable income minus the federal taxes you pay, which results in a modest tax burden. The place you really get whacked is on capital gains. If it's a big paycheck, you can get hit with 9.9% income tax on anything over $125k, $250k for couples. Obviously, you are not going to be spending that money, so moving to a sales tax only state is a good idea.

I'll break my rule about privacy and open the books a bit. My wife and I both have SS, pensions, tax sheltered accounts with RMDs, and other investments, I think pretty typical of middle class retirees in their 70s. In 2017, on a federal AGI of $145k we paid $8K in state income tax, for an effective tax rate of 5.5%. The SS being tax free dropped the bill a bunch.

Property taxes on 90 acres of timber (most in timber deferral) with a 1740 sf. completely updated house, outbuildings, and a quarter mile of creek frontage, was another $1600. You could probably buy comparable property in my area for $400k to $500k. Thanks to keeping records of the purchase basis and improvements, capital gains on our home will be well below the $500k homestead exemption, so we won't pay any taxes on that if we sell.

I don't feel like our taxes are in any way onerous. Certainly, if we were living in Washington we would be paying far more in state and local taxes.

[leastprime]

I am letting our tax accountant figure it out. We are transitioning to Washington residence. We have deferred VA annuities (IRA, Roth, and nonqualified) which we are deferring till we fully transition to WA. Wife moved to WA in June.

We have some rentals in WA. We are paying Oregon Income taxes because I still reside in OR to watch my father (99).
May be I can declare a WA residence and keep a pied-d'terre in Oregon? Note to self-see tax accountant.

[5gables]

I am hoping for a demonstration (not an explanation) from a local Salem politician on how his upscale home in a primo location got a lower appraised value. My house got the usual 3% increase, which applied to a rate increase resulted in an 11% increase over 2017 property taxes. Just please show me how to get a lower appraised value, please sir.

Also, there're apparently working on a new bond, but it's for the fire department, so automatic yes from me.

[Larry Caldwell]

Originally Posted by 5gables

I am hoping for a demonstration (not an explanation) from a local Salem politician on how his upscale home in a primo location got a lower appraised value. My house got the usual 3% increase, which applied to a rate increase resulted in an 11% increase over 2017 property taxes. Just please show me how to get a lower appraised value, please sir.

Also, there're apparently working on a new bond, but it's for the fire department, so automatic yes from me.

You have two appraisals on your tax info, the Real Market Value (RMV) which has nothing to do with the taxes you pay, and the taxable value, which by law can only increase by 3% a year.

If you got an 11% increase in your property taxes, you passed a bond measure for capital improvements, like bridges, roads, schools, fire stations, sewage treatment upgrades, or whatever.

I have no idea why you would want a lower RMV. It's not costing you anything. If you feel there is an error on your property tax, talk to the assessor. If you disagree with the assessor, you can request a hearing before the Board of Property Tax Appeals. You have to file the appeal by Dec. 31 for your last statement. Forms are available from the County Clerk, right down the hall from the County Assessor.

https://www.oregon.gov/DOR/programs/...y-appeals.aspx

[ccjarider]

I just had tax accountant run #'s on our 2018 Fed and OR taxes based on the recent Fed tax law changes - OUCH!!

The $10,000 State and local tax deduction limit on Federal tax forms is huge. Decent wage income earners in OR are really going to take it in the shorts starting this year. We will see major tax increase.

I do not think this has been publicized much yet, but come Q1/19 when people start doing 2018 taxes, it will be.

The law change was correct. The Federal gov't should not subsidize crazy high tax states like OR that choose to waste tax money. However, on a personal level - this reality is gonna hurt a lot of Oregonians.

I suspect state will start seeing a brain drain as those who can make choices decide it is not worth living here just like they are doing in CA.

Perhaps state will choose to become more competitive but based on recent elections, I doubt it.
Portland will continue to send same uber-liberal morons to Salem.

Larry- You are wrong - Oregon is a State tax hell.

The no Sale tax argument is fallacy. Every Oregonian pays approx a 9% sales tax on everything including groceries and medical care in Oregon. This is because Oregonians have to earn $109 bucks to buy $100 worth of stuff, including stuff that in most states is exempt from sales tax i.e.: groceries, medical, utilities etc.

[PNW-type-gal]

Originally Posted by ccjarider

The no Sale tax argument is fallacy. Every Oregonian pays approx a 9% sales tax on everything including groceries and medical care in Oregon. This is because Oregonians have to earn $109 bucks to buy $100 worth of stuff, including stuff that in most states is exempt from sales tax i.e.: groceries, medical, utilities etc.

True in all 44 states with an income tax.


I'd like to see Oregon's taxes balanced a little more, but I doubt that will happen any time soon