Before deciding to move to that new location, make sure you know how much it will really cost you to live their. Residents fed up with high property taxes or expensive housing may be tempted to relocate to a home in a lower-cost region. People who fail to do their homework may get burned. Whether you are moving by choice or by necessity, you should evaluate all the costs of relocating because costs vary a lot even within a metropolitan area. Before you move, weigh the following costs:

Transportation

After housing, transportation is the second-biggest expense for most households, according to the Center for Neighborhood Technology in Chicago. Costs can be high whether residents drive their own cars or use public transportation. The first calculation when it comes to choosing a place to live should be this: You don’t live your life in your home, you live it outside your home. While homeowners generally are urged to keep housing costs to no more than 31% of income, the combined costs of housing and transportation should not exceed 45% of income. Many home shoppers budgeting for a new home weigh their monthly payment, taxes and insurance, but they don’t always estimate their transportation costs. It’s a mistake to think of transportation costs purely in terms of commuting. For every five miles that the average person drives, only one mile is for commuting. People need to think about the compactness of their neighborhood, how far they need to drive to reach places like the grocery store, school and medical offices.

Taxes

Taxes are especially important when comparing the overall cost of living in one area to another. Property taxes will be estimated on each home listing, but everyone should also review sales taxes and state and local income taxes. Some states also have personal property taxes on items such as cars and boats, which can add to the cost of living.

Insurance and utilities

It is recommended that people contact their insurance agent to receive an estimate of the costs of car insurance and homeowners insurance in the new location. People moving to a flood-prone or tornado-prone area may find they need additional hazard insurance. Car insurance costs depend not only on the car and driver, but also regional theft and accident rates. Utility costs also can vary from region to region. Utility costs have a lot to do with the size of the property and the energy efficiency of the design and the systems. The best way to estimate them is to get copies of the utility bills from the owners.

Other costs

Even the cost of basic groceries and medicines can vary from place to place. For example, someone earning $200,000 in Washington, D.C., would need 30% more income to maintain his or her lifestyle in New York City. By contrast, that same D.C. resident could earn 33% less in Dallas and still maintain the same lifestyle. It’s very important for people to know what the fees are and what they cover in terms of amenities and maintenance. You need to look at the association’s finances and ask about the rate of increase in fees. Of course, costs are not the only factor in deciding whether or not to relocate. I think the primary consideration should be quality of life.  As long as they can afford to live there and still save for retirement, people should choose where they want to live.

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If you’re pondering whether to buy or rent, you know the decision is partly an emotional one. If you detest landlords and have plenty of money to put toward a house, you may prefer the pride of ownership, regardless of how low rents go. On the other hand, if you plan to leave town in a year, the transaction costs involved in owning make it a prohibitive prospect. For most people, the choice is tougher. If you’re settled in a hometown and want to make the financially smartest move, a few mathematical calculations should lead you toward an answer. First, you find a home you’d like to own and calculate its “capitalization rate.” The cap rate is the amount of rental income you would earn if you bought the house and leased it out at the market rate. You express the amount as a percentage of what you’d pay for the house. So if you plunk down $100,000 for a house that you calculate could produce $5,000 a year in rental income, you’d say the capitalization rate on the house is 5%. The higher the cap rate, the better for the buyer. If the home you wish to buy has an implied cap rate that is equal to or higher than the return you think you can safely garner in stocks or bonds, it probably makes sense to go ahead and buy. What’s nice about a cap rate is that you don’t have to guess at what housing prices will do in the coming year. You only need to know what you’d pay for a home now and what it would rent for now. It’s important to calculate the cap rate correctly. Rental income is not the same as gross rent. Get a couple of local real-estate agents to tell you realistically what the house you wish to buy would garner in annual rent. Then subtract property taxes, insurance and a reserve for routine upkeep. What’s left is your rental income. (A good rule of thumb is that rental income is two-thirds of gross annual rent.) If you do buy, of course, it’s not as though you’ll get rental checks in the mail. The rental income figure you calculate is the amount of money you’re saving by not having to rent your own home. For most of us, those savings will be directed toward mortgage payments. (For a few years, those payments will mostly go to covering interest. Eventually most of it will go toward paying down the principal on your loan, which is as good as putting money in your pocket.)

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The basic tax rule on debt discharge is simple: If a lender cancels your debt, that’s taxable income to you, and you and the Internal Revenue Service will get a 1099-C form, and you will have to pay tax on that forgiveness. But Congress gave homeowners a big gift with the Mortgage Forgiveness Debt Relief Act of 2007. It excludes as much as $2 million in debt relief from income taxes through 2012. It applies, however, only to debt on primary residences. If you had a mortgage canceled on your vacation beach condo, you could get stuck. And you’ll still have to pay tax on relief from auto loans, credit cards and similar debts.There are two other exceptions that can affect homeowners: First, if your mortgage — even the mortgage on your beach condo — is discharged in a bankruptcy, none of the debt cancellation is taxable. There’s a trickier issue if you can prove you are insolvent when you get a debt forgiven. Let’s say you have $120,000 in liabilities and $100,000 in assets. You’re insolvent to the extent of $20,000. So, up to $20,000 in debt-discharge income would escape taxes. Any excess would be taxable as ordinary income. Here’s how it’ll hurt: Let’s say you have a $90,000 mortgage and $30,000 in credit card debt, and the credit card companies forgive all of that $30,000. But that’s $10,000 more than you’re allowed, and you’ll have to pay tax on that amount.

Loss of property-tax and interest deductions

There’s no escaping these potential problems. So if you think you may be losing your home, you need to adjust your tax planning. If you lose your house, you also lose future itemized deductions for interest and real-estate taxes. You can deduct the interest on as much as $1 million in principal borrowed to acquire a home, plus the interest on an additional $100,000 in home equity borrowing. There’s no limit on the deduction for real-estate taxes. If you’re paying $12,000 a year in interest plus an additional $8,000 in property taxes, that’s $20,000 in deductions you’ve just lost. In you’re in the 25% bracket, that’s an additional $5,000 you will have to pay in tax. If you couldn’t even pay your mortgage, getting $5,000 more for the IRS is going to be difficult.

The hit from homebuyer credits

The Housing and Economic Recovery Act of 2008 gave first-time homebuyers a refundable credit of 10% of the purchase price, up to $7,500. It was an interest-free loan from the IRS that had to be paid back over 15 years, starting with 2010. The American Recovery and Reinvestment Act of 2009 upped the ante to as much as $8,000 that never has to be repaid — if you stay in the home at least three years. In both cases, you’d qualify as a first-time homebuyer if neither you nor your spouse had had an ownership interest in a principal residence in the previous three years. If you didn’t qualify for the first-time-homebuyer credit, you might qualify for a $6,500 credit. This applies to so-called move-up buyers — those who have owned and lived in their current home for a consecutive five out of the past eight years. The credit does have income limits: $125,000 for singles, $225,000 for married taxpayers filing jointly.But if your home were foreclosed on within 15 years (for a home bought in 2008) or within three years (for a home bought in 2009 or early 2010), it would cease to be your principal residence. The credits would have to be repaid. Remember the extra $5,000 that your taxes went up when you lost your deductions in the earlier example? If you lost your $8,000 homebuyer credit, too, you’d have to find an additional $13,000 for Uncle Sam on top of your normal taxes.  If you qualify as a first-time homebuyer and didn’t buy a house in 2009, start shopping. If you can sign a contract by April 30, 2010, and close by June 30, you can still get the 2009 credit. But please make sure you can make the payments.

State and local tax problems

Lastly, don’t neglect the effect of the foreclosure on state and local taxes. For example, property owners in New Jersey can deduct as much as $10,000 in real-estate taxes from their state tax returns. If you lose your home, you lose that deduction as well.

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Most people retire in the same town where they spent their final working years, but some seek out a new locale with ski slopes or perhaps ocean views. Of course, budget is a big concern. Many people move close by and move to a smaller home or condo where they have less upkeep. They still want to stay close to their children and stay involved in the business world by consulting and remaining close to their clients. Here are some tips for finding a place that fits your budget and interests.

Cost of living. Moving to a place with lower housing, food and entertainment costs is an obvious way to stretch your nest egg. A lower cost of living is the major factor behind retirement mobility. I don’t know anyone moving from Kansas to Hawaii. Twenty-two percent of Americans age 51 or older who moved between 1992 and 2004 did so to save money, according to a recent analysis by the Center for Retirement Research at Boston College.

Low-tax locales. Tax rates vary considerably by location. Seven states don’t levy an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. New Hampshire and Tennessee tax only dividend and interest income. And five states have no sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Be sure to evaluate property taxes and state and local tax exemptions for seniors.

Health care facilities. Your health care needs are bound to increase as you age. Make sure your prospective retirement spot has adequate health care and elder-care facilities and a doctor who can treat any condition you may have. You can call and see how difficult it is to get an appointment, if you’re on hold for more than 10 minutes or you leave a message on voice mail and you don’t get a call back, then you know.

Proximity to family. Many retirees would like to become more involved in their grandchildren’s lives. Living near family sometimes has another bonus: help with lawn care or transportation for grocery shopping — services for which you would otherwise have to hire someone. Twenty-eight percent of older Americans who have relocated after age 51 did so primarily to be near children or relatives, Boston College found. People often migrate toward someone because they have become more disabled or have lost their spouse and they need some support that they are not getting in their current location. They will move toward their children or some friends to help them with their daily life.

Recreation and culture. When you’re no longer tied to a job, you have the freedom to live in wine country or within walking distance of a beach. Perhaps your ideal retirement spot has plenty of art galleries, golf courses and hiking trails. College towns often fit the bill and host world-class speakers and entertainers, and they often have an affordable cost of living.

Public transportation. Retirees often reach a point when they can’t or no longer want to drive. Consider the cost and quality of a town’s public transportation system and how to get around without a car. AppalCart, a regional bus service in Boone, N.C., for example, provides free local transportation. Retirees who join the Senior Club in Walnut Creek, Calif., ($7 annual dues) are eligible for a minibus service that offers transportation within the city limits for $1 each way.

Weather. To some, it’s important to not have to shovel snow or defrost a car. But warm climates also come with the downside of larger air-conditioning bills. Think about whether you want four distinct seasons. Some retirees can get the best of both worlds by maintaining or renting a residence in the north and then heading south for the winter.

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