Asheville is a popular destination for retirees, offering a blend of natural beauty, cultural attractions, and a high quality of life. Beyond the lifestyle perks, North Carolina’s tax policies make Asheville an attractive place to retire. This guide explores the tax benefits of retiring in Asheville, helping retirees maximize savings while enjoying their golden years.

1. North Carolina’s Retirement Tax-Friendly Policies

Social Security Benefits Are Tax-Free
One of the biggest advantages for retirees in Asheville is that North Carolina does not tax Social Security benefits.

Pro Tip:
Ensure that your retirement income is diversified between Social Security and other sources to optimize your tax savings.

Example:
A retired couple in Asheville receiving $40,000 annually in Social Security benefits pays no state income tax on that portion of their income.

Low Flat Income Tax Rate
North Carolina imposes a flat income tax rate of 4.4% for 2024, which applies to other sources of retirement income, such as:

  • Pensions.
  • IRA distributions.
  • 401(k) withdrawals.

Example:
A retiree withdrawing $50,000 from their IRA pays $2,200 in state taxes—a much lower rate compared to states with progressive tax systems.

2. Property Tax Exemptions for Seniors

Buncombe County offers property tax relief programs for eligible seniors.

Key Programs Include:

  • Homestead Exemption for Elderly or Disabled Homeowners: Reduces the taxable value of your home by up to $25,000 or 50% of its appraised value, whichever is greater.
  • Circuit Breaker Tax Deferment Program: Limits property taxes to a percentage of income and defers the rest until the home is sold.

Eligibility Requirements:

  • Must be 65 or older.
  • Annual income must not exceed $33,800 (for 2024).

Example:
A retired homeowner in Asheville with a property valued at $200,000 qualified for the Homestead Exemption, reducing their taxable value to $100,000 and saving $1,000 annually in property taxes.

Pro Tip:
File your exemption application with Buncombe County before June 1st each year.

3. Deductions for Medical Expenses

Retirees often have higher medical costs, many of which can be deducted on federal and state tax returns if they exceed 7.5% of adjusted gross income (AGI).

Eligible Expenses Include:

  • Doctor visits and hospital stays.
  • Prescription medications.
  • Long-term care insurance premiums.

Example:
An Asheville retiree with an AGI of $50,000 and $10,000 in medical expenses deducted $6,250 ($10,000 – 7.5% of AGI), reducing their taxable income significantly.

Pro Tip:
Group large medical expenses into a single year to exceed the deduction threshold.

4. No Estate or Inheritance Tax in North Carolina

North Carolina does not impose an estate or inheritance tax, making it a favorable state for retirees concerned about passing wealth to the next generation.

Pro Tip:
Work with a tax advisor to structure your estate planning and maximize tax benefits while avoiding federal estate tax thresholds.

5. Tax Benefits for Retirees with Part-Time Income

Many retirees in Asheville continue working part-time or start small businesses. Income from these activities qualifies for tax deductions and credits.

Common Deductions Include:

  • Home office expenses for self-employed retirees.
  • Business-related travel and equipment costs.

Example:
A retired Asheville resident running a part-time consulting business from home deducted $5,000 in expenses, reducing their taxable income and offsetting some of their Social Security taxes.

Pro Tip:
If you’re working while collecting Social Security, keep your income below the annual earnings limit to avoid reduced benefits.

FAQs About Taxes for Asheville Retirees

1. Are pension benefits taxed in North Carolina?
Yes, pension benefits are subject to the flat income tax rate of 4.4%.

2. Does North Carolina offer tax credits for seniors?
Beyond property tax relief programs, North Carolina does not offer additional state-specific tax credits for retirees.

3. Can I deduct long-term care insurance premiums?
Yes, as part of your medical expenses, long-term care insurance premiums may be deductible if they exceed 7.5% of your AGI.

Common Tax Mistakes Asheville Retirees Should Avoid

  1. Failing to Apply for Property Tax Relief:
    Many seniors miss out on significant savings by not applying for the Homestead Exemption or Circuit Breaker Program.
    Solution: Contact Buncombe County Tax Office to confirm eligibility and submit applications annually.
  2. Not Taking Advantage of Medical Deductions:
    Grouping medical expenses into a single year can often make them deductible.
    Solution: Plan ahead for large medical procedures or long-term care expenses.
  3. Mismanaging IRA or 401(k) Withdrawals:
    Withdrawing too much at once can push retirees into a higher tax bracket.
    Solution: Work with a tax advisor to plan distributions strategically.

Checklist for Tax Savings in Asheville for Retirees

  • Claim the Homestead Exemption for property tax relief.
  • Deduct medical expenses exceeding 7.5% of AGI.
  • Diversify retirement income to include tax-free Social Security benefits.
  • Monitor IRA and 401(k) withdrawals to avoid higher tax brackets.
  • Consult with a tax advisor to explore estate planning opportunities.

Advanced Tax Strategies for Asheville Retirees

  1. Convert Traditional IRAs to Roth IRAs:
    Pay taxes on conversions now to enjoy tax-free withdrawals later, especially if you’re in a lower tax bracket during retirement.
  2. Establish a Qualified Charitable Distribution (QCD):
    If you’re over 70½, donate directly from your IRA to a charity to satisfy Required Minimum Distributions (RMDs) without increasing taxable income.
  3. Relocate Assets for Estate Planning:
    Use trusts or gifting strategies to minimize federal estate taxes while taking advantage of North Carolina’s lack of inheritance taxes.
  4. Maximize Tax Benefits for Part-Time Work:
    Retirees working part-time in Asheville should claim all eligible business deductions, such as travel, equipment, or professional fees.

Conclusion:
Asheville is not only a beautiful place to retire but also offers numerous tax advantages for seniors. By leveraging property tax relief, medical deductions, and retirement income strategies, you can optimize your finances and enjoy your golden years. Polaris Tax & Accounting is here to guide you through every step of the tax planning process.

Contact our Asheville office today to schedule a consultation and secure your financial future.