About Real Estate: Top five tax havens for retired homeowners

Some states offer elderly homeowners lots of financial benefits, an important consideration for those who are (or will soon be) living on a fixed income.

Q. My husband and I are planning to retire soon. The problem is that real estate and income taxes in our area are already high, and we will be living on a fixed income when we start getting our Social Security checks. Are there any states where taxes are lower, so we can afford to pay them? We would not mind selling our house and moving someplace else.

A. You have asked a tough question. Counties in all 50 states charge property taxes. Most states also charge income taxes: Though some exempt money collected from Social Security, they often make up for it by imposing other types of taxes that soak retired homeowners for even more. That makes figuring out the best state in which to live, tax-wise, very difficult.

A detailed report recently published by one of my favorite magazines, Kiplinger’s Personal Finance, recently named Wyoming, Mississippi, Pennsylvania, Kentucky and Alabama as the top five “tax-friendly” states for retirees. None of them tax Social Security payments; most of them exempt other types of retirement income, too; and all have relatively low property-tax rates.

The worst states? Vermont, followed by Minnesota, Nebraska, Oregon and California. They offer little or no tax breaks to retirees, and their overall rates (including property taxes) are among the highest in the nation.

You can find a handy breakdown of all 50 states’ tax policies concerning retirees at the magazine’s website, www.kiplinger.com.

Q. The company that has provided my homeowners insurance coverage for several years recently refused to renew my policy because I filed for bankruptcy last winter. Is this legal?

A. Probably. Some insurers refuse to provide coverage to people with bad credit or those who recently have filed for bankruptcy, in part because they fear the homeowner might intentionally burn down the house to collect the insurance proceeds and get out of his or her financial jam.

Most states say this policy is legal. Contact your state’s department of insurance for details.

You likely will be able to find the coverage you need if you call a few other insurers and two or three independent insurance agents.

Q. I am a small-time landlord and was planning to take the standard 51-cents-per-mile deduction that was set by the Internal Revenue Service earlier this year for driving to and from my rental property. Now, I’ve heard that the government suddenly raised it. Do you have any details?

A. Yes. In an unusual move, the IRS in late June increased the standard deduction for business-related travel from July through December of this year to 55.5 cents per mile. The deduction for travel in the first half of the year will remain at the originally set 51 cents per mile.

The IRS typically sets its standard rate about a month before a new calendar year begins and then keeps it the same for the ensuing 12 months. The recent midyear hike was prompted by the rise in gas prices, IRS Commissioner Doug Shulman said.

Though a four-and-a-half-cent increase may not seem like much, it can really add up for investors who make frequent trips to their properties to manage them or to pick up monthly rental payments.

The standard rate for driving for medical purposes or for a job-related move also rose, to 23.5 cents for the second half of the year, from 19 cents in the first six months of 2011.

Q. Does having a mortgage improve your credit record because it shows that a bank has trusted you enough to give you a home loan, or does it hurt your score because it shows that you owe a lot of money?

A. A mortgage can have either a positive or a negative effect on your score, depending on how well you have met the required payments in the past.

Having a mortgage on your current credit record will improve your score — even though it indicates that you have a large debt — if all of your past payments have been made promptly. Conversely, your score will suffer if you have been late on the payments a time or two in the recent past and the bank reported the tardiness to the credit bureaus.

Ÿ For the booklets “Straight Talk About Living Trusts” or “Free and Clear: Getting the Mortgage Monkey off Your Back” send $4 for each and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.

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