At $100,000 gross income, a New Mexico single filer pays approximately $3,569 in state income tax — an effective rate of 3.57%. New Mexico's top rate of 5.9% applies above $210,000, and the capital gains deduction is limited to $2,500 or 40% of up to $1 million of gain from selling a New Mexico business. Note: New Mexico uses a Gross Receipts Tax (not a traditional sales tax) that applies broadly to business transactions.
At a glance
Key Facts
Income Tax Rate
Progressive 1.5%–5.9% across 6 brackets; top rate 5.9% applies above $210,000 single / $315,000 MFJ
Standard Deduction (2026)
$16,100 single / $32,200 MFJ — New Mexico conforms to the federal standard deduction
Personal Exemption
None — New Mexico follows the federal personal exemption amount, which is $0
Capital Gains
Deduction of the greater of $2,500 of net capital gains or 40% of up to $1 million of gain from the sale of a New Mexico business (2025 instructions); otherwise taxed as ordinary income
Gross Receipts Tax (GRT)
~5% state rate plus local additions; combined rate roughly 5%–9% depending on location — applies to services as well as goods
Social Security
Fully exempt for single filers with AGI ≤ $100,000 and MFJ filers with AGI ≤ $150,000; not exempt above those thresholds
Military Retirement
$30,000 exemption per qualifying retiree (2025 instructions); amounts above that are taxable
Property Tax
Effective average ~0.68% of market value — below the national average
Introduction
New Mexico taxes personal income on a six-bracket progressive scale ranging from 1.5% to 5.9%. The system rewards lower and middle earners with modest effective rates — a single filer at $100,000 faces an effective state income tax rate of roughly 3.57% after the standard deduction — while the 5.9% top bracket applies only above $210,000 for single filers ($315,000 for married couples).
Two features set New Mexico apart from neighbouring states. First, New Mexico taxes capital gains as ordinary income, with only a limited deduction (the greater of up to $2,500 of net capital gains, or 40% of up to $1 million of gain from the sale of a New Mexico business). Second, New Mexico does not levy a traditional state sales tax — instead, a Gross Receipts Tax (GRT) is charged on businesses for the privilege of operating in the state. That cost is passed to consumers and applies to services as well as goods, making it broader than a standard sales tax. Combined GRT rates (state plus local) vary by location, from a little over 5% in some places to roughly 9% in some municipalities; check the Taxation and Revenue Department's rate map for your location.
This guide covers the complete New Mexico income tax picture for 2026: brackets, standard deduction, personal exemption, Social Security taxation, retirement income rules, the capital gains deduction, property tax, and a side-by-side comparison with Arizona and Colorado.
Section 01
New Mexico Income Tax Brackets 2026
New Mexico uses a six-bracket progressive income tax. Brackets are applied to New Mexico taxable income — which starts from federal adjusted gross income after the standard or itemised deduction and personal exemptions are subtracted.
Single Filers — 2026 Brackets
Taxable Income
Rate
$0 – $5,500
1.5%
$5,500 – $16,500
3.2%
$16,500 – $33,500
4.3%
$33,500 – $66,500
4.7%
$66,500 – $210,000
4.9%
Above $210,000
5.9%
Married Filing Jointly — 2026 Brackets
Taxable Income
Rate
$0 – $8,000
1.5%
$8,000 – $25,000
3.2%
$25,000 – $50,000
4.3%
$50,000 – $100,000
4.7%
$100,000 – $315,000
4.9%
Above $315,000
5.9%
For the vast majority of residents earning below $210,000, the marginal rate on most income is 4.9%.
Worked Example: $100,000 Single Filer
Gross income: $100,000
Less standard deduction: −$16,100
NM taxable income: $83,900
Tax calculation:
1.5% × $5,500 = $82.50
3.2% × $11,000 = $352.00
4.3% × $17,000 = $731.00
4.7% × $33,000 = $1,551.00
4.9% × $17,400 = $852.60
Total NM income tax: ~$3,569 (effective rate 3.57%)
This is before any additional deductions such as the capital gains deduction or retirement income exclusions.
Section 02
Standard Deduction and Personal Exemption
New Mexico conforms to the federal standard deduction for 2026:
Single / Married Filing Separately: $16,100
Married Filing Jointly / Qualifying Widow(er): $32,200
Head of Household: $24,150
New Mexico follows the federal definition of personal exemptions, and the federal exemption amount is $0, so there is no separate personal exemption deduction on top of the standard deduction.
Unlike many states that have decoupled from federal deductions over the years, New Mexico's conformity to the federal standard deduction means that post-TCJA filers who take the larger standard deduction at the federal level will use the same figure in their New Mexico return — making the state calculation relatively straightforward for the majority of filers who do not itemise.
Taxpayers who itemise at the federal level may also itemise for New Mexico, subject to New Mexico's own additions and subtractions. New Mexico does not allow the state income tax deduction (SALT) as part of itemised deductions on the state return, but most other federal itemised deductions carry through.
Section 03
The Capital Gains Deduction for New Mexico Business Sales
New Mexico taxes capital gains as ordinary income, with a limited deduction. Under the Taxation and Revenue Department's 2025 instructions (PIT-ADJ, line 16), you may deduct the greater of 100% of your net capital gains, not to exceed $2,500, or 40% of up to $1,000,000 of net capital gain income from the sale of a business that is allocated or apportioned to New Mexico.
What This Means
Most investors with gains from stocks, funds or real estate can deduct at most $2,500 of net capital gains.
The 40% deduction applies only to gains from selling a New Mexico business, on up to $1 million of gain.
Net capital gains are the excess of net long-term capital gains over short-term capital losses; short-term gains do not count.
For example, a $500,000 gain on the sale of a New Mexico business would qualify for a $200,000 deduction (40% of $500,000), leaving $300,000 taxable at the applicable bracket rates. Confirm with a New Mexico CPA whether a specific gain qualifies, and check the 2026 instructions when they are published.
Section 04
Social Security, Pension, and Retirement Income Rules
Social Security Taxation in New Mexico
New Mexico taxes Social Security benefits, but provides an income-based exclusion that protects most retirees:
Single filers with AGI ≤ $100,000: Social Security fully excluded from NM taxable income
MFJ filers with AGI ≤ $150,000: Social Security fully excluded
Above these thresholds: the exemption does not apply, so the portion of your Social Security benefits that is taxable on your federal return (up to 85%) stays in NM taxable income at the standard progressive rates
For a retired individual with $70,000 AGI including Social Security, the full Social Security amount is excluded — zero New Mexico income tax on those benefits. For a higher-income retiree at $120,000 AGI (single), the exemption does not apply and the federally taxable portion of the benefits is included in New Mexico taxable income.
Pension and Retirement Account Income
Military retirement pay: $30,000 exemption per qualifying retiree (2025 instructions)
Federal civil service pensions (CSRS/FERS): Taxable at standard progressive rates — no blanket state exemption
Private pensions, IRA, 401(k) distributions: Taxable at standard progressive rates
New Mexico as a Retirement Destination
The combination of Social Security exclusion (below the AGI thresholds), the $30,000 military retirement exemption, and the state's below-average cost of living relative to Colorado and Arizona makes New Mexico an increasingly attractive retirement destination. The 5.9% top bracket only affects retirees with very high non-exempt income. A retired couple with $130,000 AGI (mostly Social Security + military pension) could owe relatively little New Mexico income tax.
Section 05
Gross Receipts Tax: New Mexico's Alternative to Sales Tax
What Makes New Mexico Unique
New Mexico does not levy a traditional state consumer sales tax. Instead, the state imposes a Gross Receipts Tax (GRT) on businesses for the privilege of receiving gross receipts from transactions in New Mexico. Legally, the GRT is a tax on the seller — not the buyer — but businesses are expressly permitted (and in practice almost universally do) pass this cost on to customers as a separately stated charge on invoices and receipts.
GRT Rates
The state GRT rate is approximately 5% (see the Taxation and Revenue Department rate schedule for exact current rates). Municipalities and counties add their own local increments, so combined rates vary by location.
Key Difference from Traditional Sales Tax
The GRT has a broader base than a typical sales tax in other states:
Services are taxable: Legal fees, accounting services, consulting, and most professional services are subject to GRT — this would not be the case under a standard sales tax in most states
Prescription drugs: Exempt
Groceries: Most qualifying food has a reduced GRT rate or exemption, but the rules are more complex than a simple grocery exemption
Healthcare services: Licensed practitioner services are generally exempt
Manufacturing inputs: Manufacturers may deduct certain inputs from their GRT base
For consumers, the practical experience of the GRT is similar to a high-rate sales tax. For businesses, the GRT's broader base (especially on services) is a meaningful compliance consideration that differs significantly from neighbouring states.
Section 06
Property Tax in New Mexico
New Mexico's effective residential property tax rate averages approximately 0.68% of market value — well below the national average of around 1.1% and lower than neighbouring Texas (1.40%). This makes property tax a relative advantage for New Mexico homeowners compared to most of the country.
How Property Tax Is Calculated
New Mexico assesses residential property at one-third of market value (33.3%). The county mill rate (expressed as dollars per $1,000 of assessed value) is then applied to this assessed value. The result is a nominal rate that, when expressed as a percentage of full market value, typically falls in the 0.6%–0.9% range depending on county.
Example for a $300,000 home in Bernalillo County (Albuquerque):
Assessed value: $300,000 × 33.3% = $100,000
Mill rate: ~20 mills = $20 per $1,000
Annual tax: $100,000 × $20/1,000 = ~$2,000 per year
Effective rate: $2,000 / $300,000 = ~0.67%
Key Exemptions
Head of Family Exemption: $2,000 reduction in taxable assessed value for heads of household on their primary residence
Veterans' Exemption: $4,000 reduction in taxable assessed value for qualifying veterans
Low-Income Senior Valuation Freeze: For qualifying seniors, the taxable value is frozen to prevent increases from rising market values
Disabled veterans: May qualify for a complete property tax exemption
Section 07
New Mexico vs Arizona vs Colorado: Income Tax Comparison
New Mexico sits between Arizona (flat 2.5%) and Colorado (flat 4.4%) in income tax burden for most earners, but has only a limited capital gains deduction (see the capital gains section above).
Tax Comparison at Key Income Levels (Single Filer, 2026 Estimates)
Gross Income
New Mexico
Arizona (2.5% flat)
Colorado (4.4% flat)
Texas (0%)
$50,000
~$1,184
~$848
~$1,492
$0
$100,000
~$3,569
~$2,098
~$3,692
$0
$150,000
~$6,019
~$3,348
~$5,892
$0
$250,000
~$11,158
~$5,848
~$10,292
$0
$300,000
~$14,108
~$7,098
~$12,492
$0
Estimates are illustrative, based on the standard deduction for a single filer. Actual amounts depend on deductions, credits, and filing status.
Beyond Income Tax: The Full Picture
Factor
New Mexico
Arizona
Colorado
Income tax structure
Progressive 1.5–5.9%
Flat 2.5%
Flat 4.4%
Capital gains
Limited deduction ($2,500 / 40% of NM business-sale gain)
Taxed at flat 2.5%
Taxed at flat 4.4%
Social Security
Exempt (AGI ≤ $100k single)
Fully exempt
Age-based subtraction (see CO DOR)
Military retirement
$30,000 exempt per retiree
Fully exempt
Varies (see CO DOR)
Property tax (avg)
~0.68%
~0.48%
~0.50%
Sales/consumption tax
GRT ~5–9% (broad base)
TPT 5.6%+ (8–9% in cities)
Sales tax 2.9%+ (4–9% in cities)
No local income tax
Yes
Yes
Yes
For wage earners and most investors, Arizona's flat 2.5% rate produces a clearly lower bill than New Mexico's.
A New Mexico CPA can confirm your Social Security exemption eligibility, calculate whether your capital gains qualify for the NM deduction, and help you navigate Gross Receipts Tax obligations if you run a business.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
New Mexico has a six-bracket progressive income tax ranging from 1.5% to 5.9%. The brackets for single filers are: 1.5% up to $5,500; 3.2% from $5,500–$16,500; 4.3% from $16,500–$33,500; 4.7% from $33,500–$66,500; 4.9% from $66,500–$210,000; and 5.9% above $210,000. Most residents earning under $210,000 pay a marginal rate of 4.9% on the bulk of their income, with a lower effective rate after deductions. At $100,000 gross income for a single filer, the effective rate is approximately 3.57%.
Q
How much New Mexico income tax do I pay on $100,000?
A New Mexico single filer with $100,000 gross income would subtract the $16,100 standard deduction (there is no separate personal exemption), leaving $83,900 in taxable income. The tax works out to: 1.5% × $5,500 ($82.50) + 3.2% × $11,000 ($352) + 4.3% × $17,000 ($731) + 4.7% × $33,000 ($1,551) + 4.9% × $17,400 ($852.60) = approximately $3,569 total — an effective rate of about 3.57%. This is state income tax only; federal income tax is calculated separately.
Q
What is New Mexico's standard deduction and personal exemption?
New Mexico conforms to the federal standard deduction: $16,100 for single filers and $32,200 for married filing jointly in 2026. New Mexico follows the federal exemption amount, which is $0, so there is no separate personal exemption. A single filer can deduct $16,100 before any income is taxed, and a married couple filing jointly can deduct $32,200.
Q
Does New Mexico offer a capital gains tax deduction?
Yes, but it is limited. For 2025, New Mexico allows a deduction of the greater of 100% of your net capital gains, not to exceed $2,500, or 40% of up to $1,000,000 of net capital gain income from the sale of a business that is allocated or apportioned to New Mexico. Most gains from stocks, funds and real estate therefore qualify only for the $2,500 deduction, and short-term gains are not net capital gains for this purpose. Check the 2026 instructions when they are published.
Q
Does New Mexico tax Social Security benefits?
New Mexico exempts Social Security for most retirees under income thresholds. Single filers with AGI of $100,000 or less pay zero New Mexico income tax on Social Security benefits. Married filing jointly filers with AGI of $150,000 or less also get a full exemption. If your income exceeds these thresholds, the exemption does not apply and the portion of your benefits that is taxable on your federal return (up to 85%) is included in New Mexico taxable income at the standard progressive rates. This exemption covers the large majority of New Mexico retirees.
Q
Is military retirement income taxed in New Mexico?
Partly. New Mexico allows an exemption of $30,000 of armed forces retirement pay per qualifying retiree (2025 instructions); amounts above that are taxable. Federal civil service pensions (CSRS/FERS) and other pensions are taxable at the standard progressive rates unless another exemption applies.
Q
What is the New Mexico Gross Receipts Tax and how does it differ from a sales tax?
The Gross Receipts Tax (GRT) is New Mexico's substitute for a traditional sales tax. It is legally a tax on businesses for the privilege of conducting business in New Mexico, not a tax on the consumer. The state GRT rate is approximately 5%, with local additions bringing combined rates higher, varying by municipality. Businesses pass this cost to customers on receipts. The key difference from a standard sales tax is that the GRT applies to professional and personal services (legal, consulting, accounting) that would not be taxed under a traditional sales tax in most other states.
Q
How does New Mexico's income tax compare to Arizona's?
Arizona uses a flat 2.5% income tax on all taxable income, making it significantly lower than New Mexico for wage earners. At $100,000 gross income, an Arizona single filer pays roughly $2,098 in state income tax versus approximately $3,569 in New Mexico. New Mexico's capital gains deduction is limited, so Arizona's flat rate is also lower on gains for most investors. For retirees, Arizona fully exempts Social Security at all income levels, while New Mexico exempts it only up to $100,000 AGI (single). New Mexico property taxes (0.68%) are higher than Arizona's (0.48%).
Q
Does New Mexico have a local income tax?
No — New Mexico does not impose local income taxes at the city or county level. The only income tax is the state-level progressive tax (1.5%–5.9%). This is in contrast to states like Pennsylvania, Ohio, and Kentucky, where cities often levy their own income taxes on top of the state rate. New Mexico's local governments primarily raise revenue through property taxes and local increments on the Gross Receipts Tax.
Q
What is the property tax rate in New Mexico?
New Mexico's average effective property tax rate is approximately 0.68% of market value, below the national average of about 1.1%. The state assesses residential property at one-third of market value before applying the county mill rate. A $300,000 home in Albuquerque (Bernalillo County) typically generates a property tax bill of roughly $2,000 per year. New Mexico offers a Head of Family exemption ($2,000 reduction in assessed value), a veterans' exemption ($4,000 reduction in assessed value), and a low-income senior valuation freeze.
Disclaimer:This guide provides general tax information for educational purposes only. New Mexico tax rates, brackets, standard deduction amounts, and exemption thresholds change regularly. The calculations shown are illustrative estimates and do not account for all deductions, credits, or individual circumstances. Always consult a qualified New Mexico CPA or tax professional before making significant financial decisions.