Normally receiving a letter from the tax man, either the feds or the state, is not a good thing. Did we file our taxes incorrectly? Do we owe them money? The list of questions as I opened that envelope were endless. But as I read the letter from the state tax man it had great news: our property taxes were going down! Woot, woot! I know, I almost couldn’t contain my excitement!
Our little state has a homestead exemption where they offer tax relief for households making lower incomes. When Mr. SFF was fully employed we didn’t qualify but part of the way through 2014 he was laid off and started working for himself making less money (but still plenty for our frugal household). 2015 was the first full year of his self-employment and so our total adjusted gross income was much less so low and behold, we now qualify! We file the form every year and I usually don’t even think twice about it so when I received the letter from the state department of taxes I was pleasantly surprised. We are certainly going to enjoy the $1,244 tax savings this year and likely just put this money towards our goals.
But with this came the bigger revelation, our income will be even lower when we reach FIRE and are only working part-time meaning this credit should be even larger. This is huge news! As our property taxes currently $6,195 (I know, obscenely high) any credit we get means less money we will either have to earn with our part-time jobs or less that we will have to draw out of our accounts. There are calculators we can use to estimate the credit depending on how much we are actually earning and after running a few quick calculations this could mean a savings for $2,500 or more down the road. Hello huge savings! Now this savings amount alone is probably larger then some of your total tax bills but it is one of the prices we pay to live where we do. We don’t live in a mansion, we just live in an area with really high property taxes.
I am still running my FIRE calculations based on the full property tax amount for now but as we near our actual FIRE date, I will probably revise our calculations just a little as this could make a big difference. I don’t want us to have to rely on this credit but it certainly could help out, a lot.
Now I will admit that once we reach FIRE and receive a larger credit that this is not at all what the state intended. Yes, our total household income will likely only be $20,000 per year (plus our rental income) and way below the poverty line but this will be by choice and not because we can’t earn money. Will we still accept the tax reduction, well yes. But there may be a little guilt associated. I guess I will have to do a little volunteer work in all my newfound free time to give back to the community in other ways.