State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees. Go to Retiree Tax Map District Of Columbia Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line Most Tax-Friendly From a tax standpoint, Washington, D.C., is a good place to retire (if you can stand all the political talk, that is). This is especially true for middle- and lower-income retirees. Although the District exempts Social Security income, most other forms of retirement income are taxed by the city. But many senior homeowners can get a substantial income tax credit based on the property taxes they pay.And speaking of property taxes, the median property tax rate in D.C. are the eighth-lowest in the country. The city also offers property tax breaks designed just for seniors. Sales taxes in the Nation's Capital are modest, too.The District of Columbia does impose an estate tax, though. Income Tax Range Low: 4% (on taxable income up to $10,000)High: 8.95% (on taxable income over $1,000,000) Taxation of Social Security Benefits Social Security benefits are not taxed by the state. Tax Breaks for Other Retirement Income Tier 1 Railroad Retirement benefits are exempt. Sales Tax 6% city sales tax.Groceries: ExemptClothing: TaxableMotor Vehicles: Exempt from ordinary sales tax, but taxable under special 6% to 8% excise taxPrescription Drugs: Exempt Real Property Taxes Homeowners 65 and older with household adjusted gross income of less than $135,750 for the 2021 tax year can qualify to reduce their property tax by 50%.Homeowners 65 and older whose adjusted gross income is less than $50,000 may qualify for property tax deferral.Seniors age 70 and older also have a higher income threshold for claiming the homeowner and renter property tax credit on their D.C. income tax return (the 2020 credit is worth up to $1,200). For the 2020 tax year, residents 70 and older are eligible for the credit if their federal adjusted gross income is $75,900 or less. For younger residents, the threshold is $55,700 or less. Annual Car Taxes and Fees No annual vehicle tax or fee is imposed. Estate and Inheritance Taxes For 2021, Washington, D.C., estates valued over $4 million are subject to a city estate tax. Rates in 2021 range from 11.2% to 16%.