New Mexico State Taxes: What You’ll Pay in the 2026 Tax Season

Are pensions or other retirement income taxed?

Retirement income is taxed as regular income, subject to the state’s graduated income tax rates.

Since New Mexico conforms to federal income tax rules, taxable income on your state income tax form starts with your federally adjusted gross income. Because of this, people who are 65 and older or blind may qualify for a deduction of up to $8,000 for taxable retirement income, such as pensions and IRA withdrawals. The exemption starts at $1,000 for single filers with up to $28,500 in federal adjusted gross income and maxes out at $8,000 for those with $18,000 in income. (Top eligible income ranges from $30,000 to $51,000 for married couples filing jointly, heads of household and surviving spouses.)

How is property taxed?

The state’s effective property taxes are below average, according to the Tax Foundation’s latest data. New Mexico ranked 34th in the country in 2023, according to the foundation.

The effective property tax rate — the rate after factoring in all incentives, rebates and other adjustments — was 0.61 percent of an owner-occupied home’s assessed value in 2023, the most recent year for which data was available, according to the Tax Foundation.

But rates vary based on location and local levies. The highest median property tax paid was $2,591 in Los Alamos County, while the lowest was $328 in Harding County, according to the Tax Foundation’s most recent data.

County assessors assign market values to properties. The taxable value equals a third of market value.

Once exemptions are subtracted, the net value is multiplied by the local tax rate. Rates — expressed in mills — are set annually by the New Mexico Department of Finance and Administration and based on budget requests by cities, counties, school districts, voters and other taxing authorities.

Exemptions for primary residences include $2,000 for qualified heads of household and up to $10,000 for veterans and their survivors. Disabled veterans can apply for up to a 100 percent property tax exemption, depending on their disability level.

What about sales and other taxes?

• Sales tax: Businesses in New Mexico pay a gross receipts tax, or GRT, on most sales and services. GRT is similar to a sales tax, because the cost is generally passed on to consumers. The rate varies by location, because local municipalities and counties can add their own amounts to the state’s base of 4.875 percent. Taos Ski Valley charges the highest rate, at 9.4375 percent. When GRT isn’t collected for out-of-state sales — via catalogs or online retailers, for example — New Mexico collects a compensating tax. The rate for this tax, also known as a use tax, is the same as the GRT for the location where the purchase will be used. Exemptions and deductions to the tax include most groceries, prescription drugs and gas (which is taxed separately at the distributor/supplier level). New Mexico also has an annual three-day GRT tax holiday (July 31-Aug. 2, 2026) for qualifying back-to-school items such as clothing, computers and classroom supplies.
• Gas and diesel: New Mexico charges fuel distributors and suppliers various excise taxes that are generally passed on to consumers. There’s a 17 cents per gallon gas tax, a 21 cents per gallon special fuels tax for diesel and kerosene, and a tax for alternative fuels, such as propane and liquefied or compressed natural gas.
• Vehicle tax: New Mexico charges a 4 percent motor vehicle excise tax when someone applies for a vehicle title. The amount is based on the price paid for the vehicle minus any trade-in credit. For private sales, the state uses values determined by the National Automobile Dealers Association if the declared purchase price is lower than 80 percent of the NADA average trade-in or wholesale value. Vehicles given as gifts are not taxed. And certain disabled veterans are exempt from the tax.
• Alcohol: New Mexico imposes a liquor excise tax on wholesalers who sell alcoholic beverages. The rate varies according to the type and amount of drink, with beer ranging from 8 cents to 41 cents per gallon, liquor from 8 cents to $1.60 per liter and wine from 10 cents to $1.50 per liter. Smaller producers pay less. Retailers also pay a GRT on alcohol.
• Lottery: The state taxes lottery winnings as income. The New Mexico Lottery reports all winnings of more than $600 and withholds 6 percent in state taxes, plus federal taxes from prizes worth more than $5,000.

Will my estate or my heirs have to pay inheritance and estate taxes?

The state collects neither an inheritance tax nor an estate tax. New Mexico residents who inherit from someone who lived in a state with an inheritance tax may owe taxes to that state, though. Income generated from an inheritance, such as interest on a bank account or withdrawals from an inherited pretax retirement account like a 401(k) or IRA, is considered personal income and subject to New Mexico state taxation. Income generated by estates and trusts is subject to a state fiduciary tax that mirrors the income tax for single filers.

And federal taxes still apply to large estates, defined as those worth more than $13.99 million in 2025.

Are there any additional tax breaks for older New Mexico residents?

Older taxpayers may qualify for the following:

• Residents age 65 and older and disabled residents can apply annually with their local assessor for a value freeze on the assessed value of their primary, single-family home. Those with modified gross income up to $44,200 are eligible. Three consecutive approvals from the county assessor leads to a permanent freeze for those who continue to meet eligibility requirements.
• An income exemption of up to $3,000 and a $2,800 tax credit for medical expenses of more than $28,000 not compensated by health insurance, Medicaid or other sources. Taxpayers age 65 and older are eligible based on their own expenses or those of their spouse or dependents.
• A property tax rebate up to $250 on a principal residence, owned or rented, for people 65 and older with a modified gross income of up to $16,000. The credit is applied to any income tax owed. Residents in Los Alamos, Santa Fe, Doña Ana and Bernalillo counties with income of up to $24,000 may be eligible for an additional rebate of up to $350.
• A centenarian exemption. If you are at least 100 years old by the end of the year and not claimed as a dependent by another taxpayer, you’ll pay no state tax on your personal income. Married centenarians may exempt half of all community income.

Are military benefits taxed?

New Mexico offers an income tax exemption of military pensions up to $30,000. Military disability retirement pay received as a pension, annuity or similar allowance for personal injury or sickness resulting from active service is not subject to state income tax.

What is the deadline for filing by 2025 New Mexico tax return?

The postmark deadline for a paper state tax return is April 15, 2026, which is also the deadline for federal tax returns.

You can apply for a filing extension through Oct. 15, 2026, but taxes are still due April 15.

For more information about New Mexico’s tax system, visit the state’s Taxation & Revenue Department website.

More AARP Financial Resources

• AARP Retirement Calculator Determine if you are saving enough to retire when — and how — you want.
• AARP’s Social Security Calculator Figure out when to claim and how to maximize your Social Security benefits.
• AARP Tax Tools Explore resources to help you calculate and prepare taxes.