Why Income Tax Matters When Choosing Where to Buy a Home
When you are house hunting across state lines, the sticker price on a home only tells part of the story. Your total cost of living, and the amount of mortgage you can comfortably afford, depends heavily on your state tax burden. For many buyers, relocating to a state with no income tax can free up hundreds or even thousands of dollars each month, making homeownership more attainable.
As of 2026, nine US states impose no state income tax on wages and salaries: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Each of these states offers a distinct housing market, lifestyle, and set of financial tradeoffs that every prospective buyer should understand before making a move.
The Nine No-Income-Tax States at a Glance
Alaska
Alaska stands alone as the only state that charges neither an income tax nor a statewide sales tax. Residents also receive an annual Permanent Fund Dividend from oil revenues, which was approximately $1,312 per person in 2025. However, the housing market is shaped by extreme geography and climate. Anchorage, the largest city, had a median home price near $385,000 in early 2026, while rural areas can be significantly cheaper but harder to access. Buyers should factor in higher heating costs and limited inventory in remote regions.
Florida
Florida has become one of the most popular relocation destinations in the country, and the absence of a state income tax is a major draw. The median home price statewide hovered around $410,000 in early 2026, though prices vary widely. Tampa, Orlando, and Jacksonville offer relatively affordable options compared to South Florida, where Miami-Dade County medians push well above $550,000. Florida does levy a 6 percent sales tax and property taxes that average around 0.86 percent of assessed value. Buyers should also budget for homeowners insurance, which has surged in recent years due to hurricane risk.
Nevada
Nevada benefits from tourism-driven revenue that reduces the need for an income tax. Las Vegas and Reno are the primary housing markets. The Las Vegas metro area had a median home price near $430,000 in early 2026, reflecting a rebound from the pandemic-era boom and correction cycle. Property taxes are capped by law, with an effective rate averaging about 0.55 percent, among the lowest in the nation. The 6.85 percent state sales tax, plus local additions, brings the combined rate above 8 percent in most urban areas.
New Hampshire
New Hampshire is unique on this list because while it does not tax wages or salaries, it historically taxed interest and dividend income at 5 percent. That tax was fully phased out as of January 1, 2025, making New Hampshire completely income-tax-free for individuals. The state relies heavily on property taxes, which are among the highest in the country at an effective rate averaging around 1.86 percent. The median home price in New Hampshire reached approximately $475,000 in early 2026, driven by demand from buyers relocating from the Boston metro area.
South Dakota
South Dakota has long attracted retirees and remote workers with its zero income tax and low cost of living. The median home price statewide was around $310,000 in early 2026, making it one of the more affordable options on this list. Sioux Falls, the largest city, has experienced rapid growth and rising prices, with medians near $340,000. Property taxes average about 1.14 percent, and the state sales tax is 4.5 percent. The relatively low population density and harsh winters are considerations for those accustomed to milder climates.
Tennessee
Tennessee eliminated its tax on interest and dividend income (the Hall Tax) in 2021, joining the fully no-income-tax club. Nashville and its surrounding suburbs have seen explosive growth, pushing the metro median home price above $450,000 in early 2026. Memphis and Knoxville remain more affordable, with medians in the $280,000 to $350,000 range. The state sales tax is one of the highest in the nation at 7 percent, with local additions pushing combined rates above 9 percent in many areas. Property tax rates average around 0.64 percent.
Texas
Texas is a perennial favorite for relocating homebuyers, particularly those leaving high-tax states like California and New York. The absence of a state income tax is a headline benefit, but Texas compensates with property taxes that rank among the highest nationally. The effective property tax rate averages about 1.68 percent, and in some suburban counties around Dallas, Houston, and Austin, rates exceed 2 percent. The median home price in Texas was approximately $340,000 in early 2026, but the Austin metro pushed above $475,000 while Houston and San Antonio remained closer to $310,000 to $350,000.
Washington
Washington State offers no income tax on wages, though voters and legislators have debated capital gains taxes in recent years. A 7 percent tax on capital gains above $270,000 took effect in 2022 and was upheld by the state supreme court. For most homebuyers who earn a salary, the practical impact is zero state income tax. The Seattle metro area dominates the housing market, with median home prices exceeding $750,000 in early 2026. More affordable options exist in Spokane, Tacoma, and Olympia, where medians range from $380,000 to $500,000. The state sales tax is 6.5 percent, with local additions pushing combined rates above 10 percent in Seattle.
Wyoming
Wyoming has the smallest population of any US state, and its lack of an income tax is funded primarily by mineral extraction revenues. The median home price statewide was around $325,000 in early 2026, though the Jackson Hole area is dramatically more expensive. Cheyenne, the capital, offers medians near $310,000. Property taxes average about 0.55 percent, and the state sales tax is 4 percent. Wyoming appeals to buyers who value wide-open spaces, outdoor recreation, and minimal government regulation, but the limited job market and remote location are real tradeoffs.
The Hidden Tradeoffs: What Replaces Income Tax Revenue
States that forgo income tax revenue must make up the difference somewhere. Understanding these alternative revenue sources is critical for homebuyers because they directly affect your monthly budget.
Property Taxes
Several no-income-tax states impose above-average property taxes. Texas and New Hampshire are the most prominent examples. On a $400,000 home in Texas, you could pay $6,700 or more annually in property taxes, compared to roughly $3,400 on the same value home in a state with average property tax rates. This ongoing cost reduces the mortgage amount you can qualify for and adds significantly to your monthly housing payment.
Sales Taxes
Tennessee and Washington rely heavily on sales taxes, with combined state and local rates exceeding 9 to 10 percent in many areas. This disproportionately affects your day-to-day spending and should be factored into your total cost-of-living calculation. Groceries are exempt in some of these states but not all.
Fees and Other Charges
Some states charge higher vehicle registration fees, tolls, or use taxes to offset the missing income tax revenue. Florida, for example, charges a 6 percent sales tax on vehicle purchases plus local discretionary taxes. Alaska has no state sales tax, but many municipalities impose their own local sales taxes ranging from 1 to 7.5 percent.
How to Calculate Your True Savings
Moving to a no-income-tax state does not automatically mean you keep more money. The best approach is to calculate your total tax burden across all categories.
Step 1: Estimate your current state income tax. Look at your most recent state tax return or use your marginal rate multiplied by your taxable income.
Step 2: Estimate property taxes in the new state. Multiply the home price you are targeting by the effective property tax rate for that county.
Step 3: Estimate sales tax impact. Multiply your estimated annual spending on taxable goods by the combined sales tax rate. A family spending $40,000 per year on taxable purchases in Tennessee would pay roughly $3,600 in sales tax.
Step 4: Compare total burdens. Add up income tax (zero in the new state), property taxes, sales taxes, and any other state-specific fees. Compare this total to your current state burden.
For a household earning $150,000 per year, the savings from moving to a no-income-tax state can range from $3,000 to over $10,000 annually, depending on which state you leave and which you move to. But if the new state has dramatically higher property taxes or insurance costs, those savings can shrink or disappear.
Impact on Mortgage Qualification
Your debt-to-income ratio is the primary factor lenders use to determine how much mortgage you can afford. Because property taxes and insurance are included in your monthly housing payment for DTI calculations, a state with high property taxes can reduce your borrowing power even if you save on income taxes.
For example, a buyer earning $120,000 per year might qualify for a $400,000 mortgage in a state with 0.8 percent property taxes but only a $360,000 mortgage in Texas where the rate is 1.68 percent, all else being equal. Lenders look at the full monthly obligation, not just the mortgage principal and interest.
Conversely, the absence of state income tax increases your take-home pay, which can improve your DTI ratio on the income side. The net effect depends on your specific numbers, so running the calculation with a lender or mortgage calculator for your target state is essential.
Best No-Income-Tax States for First-Time Buyers
If affordability is your top priority, South Dakota, Wyoming, and Tennessee (outside Nashville) offer the most attractive combination of no income tax, reasonable property taxes, and median home prices below the national average. Texas also offers pockets of affordability in San Antonio, El Paso, and smaller metro areas, but the high property taxes offset some of the income tax savings.
Florida remains popular but has become increasingly expensive in desirable areas, and insurance costs continue to climb. Alaska offers unique financial perks through the Permanent Fund Dividend but presents logistical challenges that most first-time buyers are not prepared for.
Key Takeaways for Homebuyers
Choosing a state with no income tax can significantly improve your financial picture, but the decision requires a full accounting of property taxes, sales taxes, insurance costs, and overall cost of living. A state that looks affordable on paper might surprise you with hidden costs, while another might deliver genuine savings that make homeownership more realistic.
Before making a move, work with a local real estate agent who understands the tax landscape, run the numbers for your specific income and target home price, and consider the non-financial factors like job market, climate, and quality of life that will shape your experience as a homeowner.
