What Are New Mexico’s Taxes for Retirees?
Explore the financial implications of retiring in New Mexico. Understand the state's tax structure and key relief programs available to seniors.
New Mexico’s cultural heritage and landscape make it an appealing destination for retirees. Financial planning for retirement in the state requires understanding its tax structure, which includes state income tax, local property taxes, and a statewide gross receipts tax that functions differently from a sales tax.
State Income Tax on Retirement Income
New Mexico subjects most retirement income to state income tax, including distributions from 401(k)s, IRAs, and private pensions. However, the state offers a tax benefit for residents aged 65 and older, who can exempt a portion of their retirement income. The maximum exemption is $8,000 per person, but this is subject to income limitations.
This exemption directly reduces a retiree’s adjusted gross income (AGI), lowering their overall tax liability. For example, a married couple where both spouses are over 65 could exempt up to $16,000 of their combined retirement income.
Social Security benefits also receive favorable treatment and are not taxed for most retirees. The full exemption applies to single filers with an AGI under $100,000 and married couples filing jointly with an AGI under $150,000. For those with incomes above these thresholds, a portion of their Social Security benefits may become taxable.
After all deductions, the remaining taxable income is subject to New Mexico’s graduated income tax rates, which range from 1.7% to 5.9% for the 2025 tax year. Military retirement pay has an exemption of up to $30,000 for tax years through 2026.
Property Taxes for Homeowners
Property taxes in New Mexico are a local revenue source based on a property’s assessed value, which is set at one-third of its fair market value. This value is then multiplied by the local mill levy, which varies by county and municipality, to determine the annual tax bill.
The state offers a property tax valuation freeze for homeowners aged 65 or older who meet certain income requirements. For the 2025 freeze, an applicant’s 2024 modified gross income could not exceed $42,900. This program freezes the assessed value of a primary residence, preventing the taxable value from increasing even if the property’s market value rises.
To benefit from the valuation freeze, eligible seniors must file an application with their county assessor’s office. The deadline is 30 days after the annual Notice of Value statements are mailed. After three consecutive years of qualifying, the freeze can become permanent, removing the need for annual reapplication if ownership and income status do not change.
Some retirees may also qualify for a low-income property tax rebate of up to $250 for an individual. This credit is claimed on the state income tax return.
Understanding the Gross Receipts Tax
Instead of a traditional sales tax, New Mexico levies a Gross Receipts Tax (GRT) on businesses for operating in the state. It is common practice for companies to pass this cost on to the consumer, making its effect on a retiree’s budget similar to a standard sales tax.
The statewide GRT rate is 4.875%, but the actual rate consumers pay is higher because counties and municipalities can add their own local increments. This causes the total combined rate to vary significantly depending on the location, with rates ranging from just over 5% to more than 9%.
The exemptions allowed under the GRT are important for managing expenses. New Mexico provides a full deduction for several key purchases, which helps lower costs for retirees. These exemptions include:
- Most food items at grocery stores
- All prescription drugs
- Medical services provided by doctors and hospitals
- Premiums paid for insurance policies
Estate and Inheritance Tax Rules
Retirees planning their estates will find New Mexico’s tax laws favorable. The state does not impose an estate tax, which means that upon a resident’s death, their estate is not subject to any state-level tax before assets are distributed to heirs.
Furthermore, New Mexico does not have an inheritance tax. An inheritance tax is paid by the beneficiaries who receive assets from an estate. The absence of this tax in New Mexico ensures that heirs receive their full inheritance without any reduction for state taxes.