At $100,000 gross income, a New Mexico single filer pays approximately $3,710 in state income tax — an effective rate of 3.71%. New Mexico's top rate of 5.9% applies above $210,000, and the state offers a 50% capital gains deduction on New Mexico-source gains. Note: New Mexico uses a Gross Receipts Tax (not traditional sales tax) that applies broadly to business transactions.
At a glance
Key Facts
Income Tax Rate
Progressive 1.7%–5.9% across 5 brackets; top rate 5.9% applies above $210,000 single / $315,000 MFJ
Standard Deduction (2026)
$14,600 single / $29,200 MFJ — New Mexico conforms to the federal standard deduction
Personal Exemption
$4,000 per exemption (each taxpayer and dependent)
Capital Gains
50% deduction available for New Mexico-source capital gains, reducing the effective rate by half
Gross Receipts Tax (GRT)
~5% state rate plus local additions; effective combined rate 6%–9%+ depending on municipality — 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; partially taxable above those thresholds
Military Retirement
Fully exempt from New Mexico income tax
Property Tax
Effective average ~0.68% of market value — below the national average
Introduction
New Mexico taxes personal income on a five-bracket progressive scale ranging from 1.7% 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 3.71% after the standard deduction and personal exemption — while the 5.9% top bracket, enacted in 2021, applies only above $210,000 for single filers ($315,000 for married couples).
Two features set New Mexico apart from neighbouring states. First, the state offers a 50% deduction on New Mexico-source capital gains, cutting the effective capital gains rate roughly in half for qualifying gains. Second, New Mexico does not levy a traditional 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) run from about 6% in rural areas to over 9% in some municipalities.
This guide covers the complete New Mexico income tax picture for 2026: brackets, standard deduction, personal exemption, Social Security taxation, retirement income rules, the 50% 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 five-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
1.7%
$5,500 – $11,000
3.2%
$11,000 – $16,000
4.7%
$16,000 – $210,000
4.9%
Above $210,000
5.9%
Married Filing Jointly — 2026 Brackets
Taxable Income
Rate
$0 – $8,000
1.7%
$8,000 – $16,000
3.2%
$16,000 – $24,000
4.7%
$24,000 – $315,000
4.9%
Above $315,000
5.9%
The 5.9% top rate was added by the New Mexico legislature in 2021. 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: −$14,600
Less personal exemption: −$4,000
NM taxable income: $81,400
Tax calculation:
1.7% × $5,500 = $93.50
3.2% × $5,500 = $176.00
4.7% × $5,000 = $235.00
4.9% × $65,400 = $3,204.60
Total NM income tax: ~$3,709 (effective rate 3.71%)
This is before any additional deductions such as the 50% 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: $14,600
Married Filing Jointly / Qualifying Widow(er): $29,200
Head of Household: $21,900
New Mexico also allows a personal exemption of $4,000 per exemption claimed — one for each taxpayer and one for each qualifying dependent. A married couple with two dependents can claim 4 × $4,000 = $16,000 in personal exemptions on top of the $29,200 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 50% Capital Gains Deduction for New Mexico-Source Gains
One of New Mexico's most distinctive income tax provisions is a 50% deduction on qualifying New Mexico-source capital gains. This deduction effectively cuts the state income tax rate on eligible gains in half.
How It Works
If a New Mexico resident realises a $100,000 long-term capital gain from the sale of New Mexico real estate or a New Mexico business, they may deduct 50% of that gain ($50,000) from New Mexico taxable income. The remaining $50,000 is taxed at the applicable bracket rate.
For a taxpayer in the 5.9% top bracket, this brings the effective New Mexico rate on qualifying gains down to approximately 2.95% — competitive with Arizona's flat 2.5% rate on all income.
Qualifying Gains
The deduction applies to gains from the sale or exchange of property located in New Mexico or attributable to New Mexico sources. This includes:
New Mexico real estate (residential and commercial)
New Mexico business interests (partial-year allocation may apply for multi-state businesses)
Certain farm and ranch assets held in New Mexico
The deduction does not apply to gains from federal or out-of-state securities (stocks, ETFs, mutual funds) unless those securities have a specific New Mexico nexus. Standard investment portfolio gains from publicly traded securities are fully taxable.
Practical Impact
Scenario
Gain
Deductible (50%)
Taxed at 4.9%
NM Tax
NM real estate sale
$200,000
$100,000
$100,000
~$4,900
NM business sale
$500,000
$250,000
$250,000
~$14,750
Stock sale (no NM nexus)
$200,000
$0
$200,000
~$9,800
Always consult a New Mexico CPA to confirm whether a specific gain qualifies for the 50% deduction, particularly for business sales involving assets in multiple states.
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 enacted in 2023 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: Social Security benefits are included 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 full Social Security amount is included in taxable income.
Pension and Retirement Account Income
Military retirement pay: Fully exempt (enacted 2022)
New Mexico PERA (Public Employees Retirement Association): Fully exempt
New Mexico ERB (Educational Retirement Board — teachers): Fully exempt
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 (for most income levels), full 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 minimal or zero New Mexico income tax.
Section 05
Gross Receipts Tax: New Mexico's Alternative to Sales Tax
What Makes New Mexico Unique
New Mexico is the only state that does not levy a traditional 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% (exact rate set annually). Municipalities and counties add their own local increment:
Albuquerque (Bernalillo County): ~7.875% combined
Santa Fe: ~8.4375% combined
Las Cruces: ~7.625% combined
Rio Rancho: ~7.75% combined
Rural areas: Can be as low as ~6%
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 (1.60%). 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 offers the 50% capital gains deduction that neither neighbouring state provides.
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
~$1,350
~$1,200
~$1,540
$0
$100,000
~$3,710
~$2,400
~$3,740
$0
$150,000
~$6,400
~$3,600
~$5,640
$0
$250,000
~$11,560
~$6,100
~$9,940
$0
$300,000
~$14,850
~$7,350
~$11,940
$0
Estimates are illustrative, based on standard deduction and single personal exemption. Actual amounts depend on deductions, credits, and filing status.
Beyond Income Tax: The Full Picture
Factor
New Mexico
Arizona
Colorado
Income tax structure
Progressive 1.7–5.9%
Flat 2.5%
Flat 4.4%
Capital gains
50% deduction (NM-source)
Taxed at flat 2.5%
Taxed at flat 4.4%
Social Security
Exempt (AGI ≤ $100k single)
Fully exempt
Partial (age 65+ up to $24k)
Military retirement
Fully exempt
Fully exempt
Fully exempt
Property tax (avg)
~0.68%
~0.72%
~0.60%
Sales/consumption tax
GRT ~6–9% (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 high-income earners with NM-source capital gains from real estate or business sales, New Mexico's 50% deduction can produce a lower effective tax bill than Arizona's flat 2.5% — particularly on large transactions. For wage earners without significant capital gains, Arizona is clearly lower.
A New Mexico CPA can confirm your Social Security exemption eligibility, calculate whether your capital gains qualify for the 50% 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 five-bracket progressive income tax ranging from 1.7% to 5.9%. The brackets for single filers are: 1.7% up to $5,500; 3.2% from $5,500–$11,000; 4.7% from $11,000–$16,000; 4.9% from $16,000–$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 3.71%.
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 $14,600 standard deduction and $4,000 personal exemption, leaving $81,400 in taxable income. The tax works out to: 1.7% × $5,500 ($93.50) + 3.2% × $5,500 ($176) + 4.7% × $5,000 ($235) + 4.9% × $65,400 ($3,205) = approximately $3,710 total — an effective rate of about 3.71%. 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: $14,600 for single filers and $29,200 for married filing jointly in 2026. In addition, New Mexico allows a $4,000 personal exemption per exemption claimed — one for each taxpayer and one for each qualifying dependent. A single filer with no dependents can deduct $14,600 + $4,000 = $18,600 before any income is taxed. A married couple with two children can deduct $29,200 + $16,000 = $45,200.
Q
Does New Mexico offer a capital gains tax deduction?
Yes — New Mexico allows a 50% deduction on qualifying New Mexico-source capital gains. If you sell New Mexico real estate or a New Mexico business and realise a $100,000 capital gain, you can deduct $50,000, and only the remaining $50,000 is subject to New Mexico income tax. For a taxpayer in the 4.9% bracket, this reduces the effective rate on that gain from 4.9% to approximately 2.45%. The deduction applies to gains from NM-source property; gains from publicly traded securities (stocks, ETFs) that have no specific NM nexus do not qualify.
Q
Does New Mexico tax Social Security benefits?
New Mexico exempts Social Security for most retirees under income thresholds enacted in 2023. 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, Social Security 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?
No — New Mexico fully exempts military retirement pay from state income tax, effective from 2022. State government pensions through the New Mexico Public Employees Retirement Association (PERA) and teacher pensions through the Educational Retirement Board (ERB) are also fully exempt. Federal civil service pensions (CSRS/FERS) are taxable at the standard progressive rates.
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 to roughly 7.875% in Albuquerque and 8.44% in Santa Fe. 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 $2,400 in state income tax versus approximately $3,710 in New Mexico. However, if you have New Mexico-source capital gains from real estate or a business, New Mexico's 50% capital gains deduction can bring the effective NM rate on those gains below Arizona's 2.5%. 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 slightly lower than Arizona's (0.72%).
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 (1.7%–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.