Should Rent Be Part of Your Retirement Plans?

Renting can offer enticing benefits for retirees: no surprise maintenance costs, flexibility in where to live, and access to communal amenities like pools, gyms, and laundry services.

These advantages may be why over 20% of American retirees rent, according to a report by Harvard University, which studied the living situations of adults aged 65 or older.

But did you know there may be tax benefits to renting as well?

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Although rent prices are on the rise, some retiree renters could see savings in taxes that outweigh the cons. Here are a few reasons why you may consider a move.

Retirement rentals: renovations, sales tax, and investment considerations

Most people know renting can save you from managing property upkeep and renovations. But do you know how costly renovations have become in recent years?

• Construction costs are up over 30% post-pandemic, with the National Association of Home Builders also reporting that sustained price surges contribute to higher home insurance premiums.
• Newly built homes and upgrades are typically appraised based on the cost of building, meaning that, while construction price hikes may affect rental costs, the increased cost of materials directly impacts new housing and home renovations.

Rising costs could be worrisome as many retirees renovate to make their homes more comfortable as they age. (Upgrading bathrooms for better accessibility and widening doorways are among the top aging-in-place projects, according to AARP.)

The benefit of renting in retirement is that you would not need to shoulder these home renovation costs as a lump sum. The landlord would be responsible for the projects and the amount you “pay” would be distributed across your rent payments.

Plus, retiree renters may see some additional tax benefits:

• Selling your home could free up capital to invest in tax-advantaged equity (see Three Ways to Reduce Taxes on Investment Earnings).
• Savings on property tax could be substantial, especially in states you move to a state with low property taxes (similar to construction costs, you may pay all or part of the property tax in evenly distributed rent payments).
• Reduced costs associated with amenities over time.

The last bullet specifically relates to rent in an independent living community. Rentals (or in some cases, homeownership) in these communities can include three meals a day, some house cleaning services, social activities, and even transportation, which may offer significant cost savings over time. (All-included benefits as part of rent may be particularly useful in states that tax groceries and states with high gas tax.)

However, renting isn’t for everyone. Unless you can negotiate a low cost, monthly rent can be high, and increase annually. Plus, you may be subject to a capital gains tax on your home sale if you receive significantly more than you paid.

But if reinvesting the money from your home sale and reducing monthly maintenance sounds enticing, read on. Next, we’ll cover a different kind of tax savings: renter tax breaks.

Property tax credit for renter older adults

Rent tax breaks are designed to provide some relief for those who pay property taxes indirectly through rent. This state-level benefit is usually distributed as a credit, refund, or other type of rebate and can provide a similar benefit to a property tax deduction.

But unlike a property tax deduction, you may not need to itemize to take a renter’s tax break.

Additionally, renter tax breaks are more widely available for older adults, because they typically have an age minimum you must meet. Many states offer older adult rent tax breaks, but not all. (And some states may share their rent tax credit with homeowners.)

So if you’re looking to move to a state with an older adult rent tax credit, we’ll cover three that could offer a refund or credit of around $1,000 per year.

States for older adult rent tax breaks

Below are three states in which you may be eligible for the rent tax breaks for older adults:

• Colorado. The Property Tax/Rent/Heat Credit rebate is worth up to $1,112 for eligible residents aged 65 and older.
• Iowa. The Rent Reimbursement program provides up to $1,000 for renters at least 65 years old.
• Maryland. Renters aged 60 or older may be able to receive a Renters’ Tax Credit of up to $1,000.

Note: Keep in mind the above list is not exhaustive, and additional eligibility requirements may apply. Check out your state’s Department of Revenue website for more information.

Renting in retirement could be a definite possibility for many retirees. There are pros to becoming a renter — opting out of renovation projects, reinvesting capital in different ways, and qualifying for new potential tax breaks — which could be reasons to consider a move.

Picture a day in the life of retirement, and, if renting is part of the plan, find a way to achieve your goal.

Related Content

• Ten Tax-Friendly States for Retirees
• Arizona's New Rental Tax Repeal
• States That Don't Tax Pension Income
• How All 50 States Tax Retirees