Which States Don’t Tax Military Retirement Pay in 2025?

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You served your country with honor. Now it’s time to retire. But here's the catch: some states give back, others take more. If you're transitioning from military to civilian life, state taxes on retirement income can chip away at the financial freedom you earned.

Here’s the truth: your military pension might be worth thousands less annually if you pick the wrong state. Let’s sort through the confusion and spotlight states where your retirement dollars stretch furthest.

Key Takeaways:

Not all tax-free states are financially equal—property taxes and living costs vary.
Only a select number of states fully exempt military pensions.
VA loans can offset high living expenses, even in taxed states.
Transitioning veterans should factor in taxes, home affordability, and VA lending access.

This guide breaks down military pension tax laws, VA loan advantages, and how to buy smart with tools like reAlpha and Be My Neighbour.

Reality Check: What Military Families Often Overlook?

Only 12 U.S. states offer full exemptions from military retirement pay. The rest? They either tax partially, offer exemptions with conditions, or treat your pension like any other income.

Heads up:

38 states still tax military retirement in some form.
Veterans can lose $3,000 to $8,000 per year depending on their state.

That’s not just a tax burden. That’s the difference between building equity and barely breaking even.

This is especially important if you're considering buying a home. Taxes tie directly into your monthly affordability—and your long-term investment potential.

Which States Are 100% Tax-Free for Military Pensions?

These states fully exempt military retirement pay as of 2025:

Florida
Texas
Nevada
South Dakota
Alaska
Wyoming
New Hampshire
Tennessee
Illinois
Mississippi
Alabama
Hawaii

Pro Tip: Always double-check with the state tax office for changes and fine print.

Do Tax-Friendly States Still Have High Property Taxes?

Yes, and this can offset your retirement gains. Here are some key examples:

Texas has no income tax, but high property taxes.
Florida balances low property taxes with no retirement tax.
Illinois exempts military pensions, but local taxes vary wildly.

Action Step: Use Be My Neighbour to run a VA affordability analysis by zip code.

How Do VA Loans Help in High-Cost States?

VA loans offer:

Zero down payment
No private mortgage insurance (PMI)
Competitive rates
Flexible underwriting

Even in taxed states, a VA loan can dramatically reduce your monthly costs.

Your Commission-Free Advantage with reAlpha

What if you could buy a home without paying agent commissions? reAlpha lets you do exactly that.

Here’s why it matters:

Agent fees eat into your equity.
reAlpha lets you keep more of your investment.
Smart AI tools help you find VA loan-friendly homes.

Explore reAlpha now – because every dollar you save builds long-term wealth.

State-by-State Comparison Table


State	Military Pension Tax	Avg Property Tax	VA Loan Friendliness	Cost of Living Index
Florida	No	Moderate	High	Medium
Texas	No	High	Moderate	Medium
Illinois	No	Moderate	High	Low
Alabama	No	Low	Moderate	Low
Nevada	No	Moderate	Moderate	Medium
Virginia	Partial	Moderate	High	Medium
North Carolina	No	Low	High	Low
Arizona	Partial	Moderate	Moderate	Medium
Colorado	Partial	High	High	High
Georgia	Partial (phased out)	Moderate	High	Low
Tennessee	No	Low	Moderate	Medium
South Carolina	Partial	Low	High	Low
Washington	No	High	Moderate	High

Your Future Life, Reimagined

Picture this: you move to a state that respects your service by taxing you less. You buy your dream home commission-free. Your monthly mortgage is optimized through a VA loan. One year later, your equity is growing, your costs are low, and your lifestyle is elevated.

That’s what happens when you plan with the right tools: Be My Neighbour and reAlpha.

FAQs

What are the best states for military retirement with no tax?

Florida, Texas, Alaska, and Nevada top the list for their pension exemptions, cost of living, and VA perks.

Does California tax military retirement pay?

Yes, California treats military retirement pay as regular income.

Can I avoid taxes by changing my domicile?

Yes, but you must meet residency requirements like living time, voter registration, and driver’s license transfer.

How do VA loans differ by state?

Loan limits, property eligibility, and funding fees may vary. Local VA loan specialists like those at Be My Neighbour can clarify everything.

What’s the best state for military families to settle in 2025?

It depends on your priorities: Florida is great for zero tax + VA access. Illinois works for affordability. Texas is strong in job markets.

Final Word

You’ve done the hard part: serving your country. Now it’s time to retire smart.

Use Be My Neighbour to access VA loan experts who simplify the mortgage maze.
Use reAlpha to buy your home with zero commission fees.

Wherever you land, make it count.

Disclosures:

Be My Neighbour is a licensed mortgage broker, NMLS #1743790.
This article is for informational purposes only and does not constitute financial or legal advice.
VA loan terms, rates, and availability are subject to individual eligibility and underwriting approval.
State tax policies can change. Always consult a tax professional or state tax authority for current information.

reAlpha is not a licensed mortgage broker or lender. They offer commission-free home purchase platforms and investment tools.

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