State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees. Go to Retiree Tax Map New Mexico Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line Not Tax-Friendly The Land of Enchantment is not a magical place for well-off retirees. Social Security benefits, retirement accounts and pensions are all taxable. The state does offer a retirement-income exemption of up to $8,000, but you must meet certain income restrictions to qualify.New Mexico's sales tax has a broad reach, hitting most services in addition to goods. As a result, this tax tends to hit retirees fairly hard.On the bright side, property taxes are on the low side, and there are property tax credit and deferral programs available to low-income seniors. Plus, if you live to be 100 years old, the state's income tax is waived. Income Tax Range Low: 1.7% (on up to $5,500 of taxable income for single filers and $8,000 for joint filers)High: 4.9% (on taxable income over $16,000 for single filers and over $24,000 for married couples filing jointly)Beginning with the 2021 tax year, the top rate will be 5.9% on taxable income over $210,000 for single filers and over $315,000 for joint filers. Taxation of Social Security Benefits Social Security benefits are taxed to the same extent they are taxed at the federal level. Tax Breaks for Other Retirement Income Taxpayers age 65 or older can exclude up to $8,000 of income. Federal adjusted gross income cannot exceed $28,500 for single filers, $51,000 for joint filers, or $25,500 for married taxpayers filing a separate return.In addition, taxpayers age 100 or older can exclude all income. (Since New Mexico is a community property state, married centenarians can only exclude half of community income.)Railroad Retirement benefits are fully exempt. Sales Tax 5.125% state levy. Localities can add as much as 4.313%, and the average combined rate is 7.83%, according to the Tax Foundation. New Mexico's tax is a gross receipts tax that covers most services.Groceries: ExemptClothing: TaxableMotor Vehicles: Exempt from ordinary sales tax, but taxable under special 4% excise taxPrescription Drugs: Exempt Real Property Taxes Homeowners 65 and older who earn $16,000 or less are eligible for a property tax credit of up to $250 (or $125 for married couples filing separately). Those who live in Los Alamos or Santa Fe Counties and earn $24,000 or less may also qualify for an additional credit of up to $350 ($175 if married filing separately).Low-income homeowners 65 or older can also apply to have the tax valuation of their property frozen if their income is $32,000 or less. Annual Car Taxes and Fees No annual vehicle tax or fee is imposed. Estate and Inheritance Taxes No estate or inheritance tax.