Delaware Veteran Benefits 2025: Property Tax, Income Tax & Financial Guide

Delaware may be the second-smallest state in America, but it punches above its weight for veterans in one critical way: zero sales tax. Combined with some of the lowest property tax rates in the nation and growing military retirement tax relief, Delaware offers a unique value proposition for veterans—especially those willing to live in a small state with big neighbors.

Here's what you need to know about Delaware's veteran tax benefits, property tax exemptions, and whether "The First State" makes financial sense for your retirement.

Bottom Line Up Front

Here's what Delaware offers veterans in 2025:

• Sales tax: ZERO - Delaware is one of only five states with no sales tax
• Property tax: Full exemption for 100% disabled veterans; $5,000 assessed value deduction for 10%+ disabled
• School tax credit: 100% of non-vocational school district property tax for 100% P&T disabled veterans
• Military retirement pay: $12,500 exempt (age 60+), $2,000 exempt (under 60) - legislation pending to increase to $25,000 for all ages
• VA disability pay: Completely tax-free (federal and state)
• Property tax rate: 0.43-0.55% average (one of the lowest in America)

Potential annual savings for a 100% disabled veteran: $3,000-$6,000+ depending on property value and location.

The Delaware advantage: No sales tax means every purchase saves you 6-10% compared to neighboring states. Property taxes are a fraction of New Jersey, Pennsylvania, or Maryland. For veterans who want Mid-Atlantic location without Mid-Atlantic costs, Delaware delivers.

Income Tax Treatment for Veterans

Military Retirement Pay - Current Law and Pending Changes

Delaware currently offers a limited military retirement exemption, but that's changing.

Current law (2025):

• Age 60 and older: Exclude up to $12,500 of military retirement pay
• Under age 60: Exclude up to $2,000 of military retirement pay
• This is part of Delaware's general pension exclusion

The math (current law): At Delaware's top tax rate of 6.6%, exempting $12,500 saves approximately $825/year for retirees over 60.

Pending Legislation - Significant Improvements Coming

Multiple bills are working through Delaware's legislature to dramatically improve military retirement tax treatment:

Senate Bill 188 (most favorable):

• 100% exemption for military retirement pay starting tax year 2025
• No age restrictions
• No income limits
• Would make Delaware fully competitive with tax-free states

Alternative phased approach:

• Increases exemption from $12,500 to $25,000 over 3 years
• Removes age requirement (same $25,000 for all ages)
• Full phase-in by tax year 2026

Status: Bipartisan support, pending final legislative action.

What this means: If you're planning a move to Delaware in 2025-2026, monitor these bills. Passage of full exemption would save military retirees $1,200-$2,400+ annually depending on retirement pay amount.

VA Disability Compensation - Tax-Free

All VA disability compensation remains exempt from federal and state taxation. Whether you receive $171/month for a 10% rating or $3,946/month for 100% with dependents (2025 rates), you won't pay taxes on it.

State Income Tax Rates (For Other Income)

Delaware operates on a graduated income tax system with moderate rates:

• 0% on taxable income up to $2,000
• 2.2% on income from $2,001 to $5,000
• 3.9% on income from $5,001 to $10,000
• 4.8% on income from $10,001 to $20,000
• 5.2% on income from $20,001 to $25,000
• 5.55% on income from $25,001 to $60,000
• 6.6% on income over $60,000

Most military retirees fall into the 5.2-6.6% brackets—significantly lower than neighboring states.

Comparison to Neighboring States

State	Military Retirement	Top Income Tax Rate	Sales Tax	Property Tax (avg)
Delaware	$12,500 exempt (pending increase)	6.6%	0%	0.43-0.55%
Pennsylvania	Full exemption	3.07% flat	6-8%	1.36%
New Jersey	Partial (based on income)	10.75%	6.625%	2.26%
Maryland	Up to $5,000 (phase-out)	5.75%	6%	1.09%
Virginia	Subtraction for 55+	5.75%	5.3%	0.80%

Delaware's sweet spot: While Pennsylvania has full military retirement exemption, Delaware crushes it on property taxes and sales tax. Compared to New Jersey, Delaware saves veterans thousands annually on property taxes alone.

Property Tax Exemptions for Veterans

100% Disabled Veterans - Full Exemption

If you're rated 100% Permanent and Total (P&T) by the VA, you qualify for Delaware's full property tax exemption.

What you get:

• Exemption equal to full assessed value of your primary residence
• Eliminates county property taxes entirely
• Available to 100% P&T disabled veterans or those receiving 100% due to individual unemployability (TDIU)
• Also available to veterans with quadriplegia or specific mobility impairments

Eligibility:

• 100% service-connected permanent and total disability
• OR 100% disability compensation due to individual unemployability
• Must have lived in Delaware for past 3 years
• Property must be your primary residence

Real-World Examples

New Castle County (Wilmington area, 0.76% rate)

• Home value: $350,000
• Assessed value: $350,000
• Annual tax without exemption: $2,660
• Annual tax with 100% exemption: $0
• Annual savings: $2,660

Kent County (Dover area, 0.40% rate)

• Home value: $300,000
• Assessed value: $300,000
• Annual tax without exemption: $1,200
• Annual tax with 100% exemption: $0
• Annual savings: $1,200

Sussex County (beach areas, 0.33% rate)

• Home value: $450,000
• Assessed value: $450,000
• Annual tax without exemption: $1,485
• Annual tax with 100% exemption: $0
• Annual savings: $1,485

Partial Disability Ratings (10%-90%)

Veterans with disability ratings between 10% and 90% receive a more modest benefit:

What you get:

• $5,000 deduction from assessed property value
• Available for veterans with 10% or higher VA disability rating
• Applies to primary residence only

Examples for Partial Disability

Wilmington home ($350,000, 0.76% rate)

• Assessed value: $350,000
• Less $5,000 deduction: $345,000
• Annual tax without exemption: $2,660
• Annual tax with $5,000 deduction: $2,622
• Annual savings: $38

Dover home ($300,000, 0.40% rate)

• Assessed value: $300,000
• Less $5,000 deduction: $295,000
• Annual tax without exemption: $1,200
• Annual tax with $5,000 deduction: $1,180
• Annual savings: $20

Reality check: The $5,000 deduction provides minimal savings for partial disability ratings. Delaware's major property tax benefit targets 100% disabled veterans.

Disabled Veterans School Property Tax Credit

This is Delaware's newest and most significant benefit for disabled veterans, enacted in 2021.

What you get:

• 100% credit against non-vocational school district property tax
• Applies to primary residence only
• Separate from the county property tax exemption (you can get both!)

Eligibility:

• 100% disability compensation due to service-connected permanent and total disability
• OR 100% disability rating based on individual unemployability
• Must have held legal domicile in Delaware for past 3 years
• Must pay property tax bill in full by end of each tax year to qualify for following year's credit

Coverage: All 16 Delaware non-vocational school districts participate

Application deadline: April 30th for upcoming tax year

How School Taxes Work in Delaware

In Delaware, property taxes are split between county, school district, and sometimes municipality:

• County property tax: Funds county government
• School district tax: Funds local schools (this is usually the larger portion)
• Municipal tax: Some cities add additional tax

Example breakdown (typical New Castle County home):

• County property tax: ~30% of total bill
• School district tax: ~60% of total bill
• Municipal tax: ~10% of total bill

Real-World School Tax Credit Examples

Wilmington home ($350,000)

• Total annual property tax: $2,660
• School district portion (60%): ~$1,596
• School tax credit: $1,596
• Combined with county exemption: Total savings $2,660 (100% P&T gets both benefits)

Dover home ($300,000)

• Total annual property tax: $1,200
• School district portion (60%): ~$720
• School tax credit: $720
• Combined with county exemption: Total savings $1,200 (100% P&T gets both benefits)

Newark home ($390,000)

• Total annual property tax: $2,964
• School district portion (60%): ~$1,778
• School tax credit: $1,778
• Combined with county exemption: Total savings $2,964 (100% P&T gets both benefits)

Un-Remarried Surviving Spouses

Un-remarried surviving spouses of qualifying veterans may also claim the full property tax exemption and school tax credit if they meet eligibility criteria.

The Zero Sales Tax Advantage

Delaware is one of only five states (along with Alaska, Montana, New Hampshire, and Oregon) with no state or local sales tax.

What this means in practice:

Annual Savings vs. Neighboring States

Family of four, typical annual spending:

• Groceries: $12,000 (not taxed in most states, but Delaware still saves on prepared foods)
• Clothing/household goods: $5,000
• Electronics/appliances: $2,000
• Restaurants/entertainment: $6,000
• Vehicle purchase: $30,000 (one-time)
• Total taxable purchases: ~$55,000

Sales tax comparison:

• Delaware: $0
• Pennsylvania (6% average): $3,300
• New Jersey (6.625% average): $3,644
• Maryland (6% average): $3,300

Annual savings: $3,300-$3,644 per year vs. neighbors

Major purchase savings:

• $30,000 vehicle in Delaware: $30,000
• Same vehicle in New Jersey: $31,988 (6.625% tax)
• Savings: $1,988

Shopping Destination

Delaware's no-sales-tax status makes it a shopping destination:

• Christiana Mall (Newark): One of America's largest malls, packed on weekends with Pennsylvania, New Jersey, and Maryland shoppers
• Tanger Outlets (Rehoboth Beach): Tax-free outlet shopping
• Delaware retail corridor (I-95): Major retailers cluster near borders

Veteran benefit: You save money just by living here, and every major purchase (vehicle, appliances, furniture, electronics) nets you 6-10% vs. neighboring states.

Vehicle Registration Benefits

Delaware doesn't offer specific disabled veteran vehicle registration exemptions like some states, but registration fees are relatively modest:

• Standard registration: $40-60 annually (based on vehicle weight)
• Disabled veteran license plates: Available but don't reduce fees
• Purple Heart plates: Available
• No vehicle property tax (unlike Virginia or other states)

Reality: Delaware isn't competitive on vehicle registration benefits, but at least there's no annual vehicle property tax.

Financial Impact Analysis

Let's calculate the total 20-year financial impact for a 100% disabled veteran in Delaware.

Scenario: E-7 Retiree, 20 Years Service, 100% Disabled

Annual income:

• Military retirement: $32,000
• VA disability: $47,352 (100% with dependents, 2025 rate)
• Total: $79,352

Home: $350,000 (above Delaware median of $300,000)

Delaware Savings Over 20 Years

Benefit	Annual Savings	20-Year Total
Property tax exemption (100%)	$2,660	$53,200
School tax credit (100%)	Included above	Included above
Military retirement tax exemption (current)	$825	$16,500
Sales tax savings vs. neighbors	$3,300	$66,000
TOTAL	$6,785	$135,700

If full military retirement exemption passes:

• Additional annual savings: $1,287
• Additional 20-year savings: $25,740
• New total: $161,440 over 20 years

Note: This assumes:

• 0.76% New Castle County property tax rate
• Current military retirement exemption (conservative estimate)
• Sales tax comparison to 6% average neighboring state
• No increase in exemption amounts or home value (conservative)

Cost of Living Reality Check

Delaware's cost of living is approximately 7-8% above the national average, driven primarily by housing costs in northern Delaware (Wilmington area). However:

Delaware advantages:

• 0% sales tax (saves 6-10% on all purchases)
• Very low property taxes (0.43-0.55% vs. 1%+ in most states)
• Lower than New Jersey, Maryland urban areas
• No vehicle property tax
• Moderate income tax rates

Delaware challenges:

• Higher housing costs than Pennsylvania, Virginia, North Carolina
• Small state limits geographic options
• Limited defense contractor presence

How to Claim Your Benefits

Step 1: Property Tax Exemption (100% Disabled Veterans)

Timeline: Apply as soon as you receive 100% P&T rating

Required documents:

• VA rating decision letter showing 100% P&T or 100% schedular/TDIU
• DD-214 (Certificate of Release or Discharge from Active Duty)
• Delaware driver's license or ID
• Property deed or mortgage statement
• Proof of 3-year Delaware residency

Where to apply: Your county assessment office

County assessment offices:

• New Castle County (Wilmington, Newark, etc.): (302) 323-2600 | nccde.org/260/Assessment
• Kent County (Dover): (302) 736-2077 | co.kent.de.us/departments/assessment
• Sussex County (Lewes, Rehoboth Beach, Georgetown): (302) 855-7878 | sussexcountyde.gov/assessment

Processing time: 30-60 days

Deadline: Varies by county; apply as soon as possible to avoid missing current tax year

Step 2: School Property Tax Credit (100% Disabled Veterans)

Timeline: Apply annually by April 30th

Required documents:

• VA rating decision letter showing 100% P&T or 100% TDIU
• Proof of Delaware domicile for past 3 years
• Proof you paid prior year's property tax in full
• Completed application form

Where to apply: Delaware Department of Finance

Contact:

• Delaware Department of Finance - Disabled Veterans School Tax Credit
• Phone: (302) 739-5644
• Website: finance.delaware.gov/disabled-veterans

Processing time: Applications processed for upcoming tax year

Key requirement: Must have paid previous year's property tax bill in full by December 31 to qualify for credit the following year

Important: You cannot claim both the Disabled Veterans School Tax Credit and the Senior School Property Tax Credit—choose whichever provides greater benefit

Step 3: Military Retirement Tax Exemption

Timeline: Claim when filing annual Delaware income tax return

How to claim:

1. File Delaware Form 200-01 or 200-02 (resident income tax return)
2. Line 12 allows pension exclusions
3. Claim up to $12,500 (age 60+) or $2,000 (under 60)
4. Attach 1099-R showing military retirement distributions

Documents needed:

• 1099-R from Defense Finance and Accounting Service (DFAS)
• Delaware tax return

Where to get help: Delaware Division of Revenue at (302) 577-8200

Step 4: Monitor Pending Legislation

Action items:

• Watch for passage of SB 188 or similar bills expanding military retirement exemption
• Contact your state legislators to support military retirement tax relief
• Join Delaware veteran advocacy groups to stay informed

Legislative session: Monitor Delaware General Assembly website at legis.delaware.gov

Frequently Asked Questions

Will the military retirement exemption be increased to $25,000 or 100%?

Multiple bills are pending with bipartisan support. Senate Bill 188 proposes 100% exemption starting tax year 2025. An alternative approach phases in $25,000 exemption over 3 years. Both have strong veteran community backing, but passage isn't guaranteed. Contact your state legislators to express support.

Do I need to reapply for the property tax exemption every year?

No for the county property tax exemption (one-time application). Yes for the school tax credit (annual application by April 30th with income verification).

Can I get both the county property tax exemption AND the school tax credit?

Yes! If you're 100% P&T disabled, you qualify for both:

• County property tax exemption (eliminates county portion)
• School tax credit (eliminates school district portion)
• Together, these eliminate your entire property tax bill

What if I'm rated 70% disabled?

You'd receive the $5,000 assessed value deduction (saves $20-38/year depending on location and tax rate). Delaware's major benefits target 100% disabled veterans. The partial disability deduction provides minimal savings.

I'm 100% P&T but don't have 3 years Delaware residency yet. Can I apply?

Not immediately. You must establish legal domicile in Delaware for 3 years before qualifying for the 100% disabled veteran property tax exemption and school tax credit. Apply as soon as you hit the 3-year mark.

Does the property tax exemption reduce my home's market value?

No. It only reduces or eliminates property taxes. Your home's actual market value and your equity remain unchanged.

Can I use the exemption on a second home or rental property?

No. Both the property tax exemption and school tax credit apply only to your primary residence.

What counts as "100% disabled" for these benefits?

Either of these qualifies:

• 100% Permanent & Total (P&T) rating
• 100% schedular rating due to individual unemployability (TDIU)

What if my county denies my exemption application?

You have the right to appeal:

1. Request written explanation from county assessment office
2. Contact Delaware Office of Veterans Services: (302) 739-2792 or (800) 344-9900
3. File formal appeal with county if necessary

Are there property tax benefits for seniors (non-veterans)?

Yes. Delaware offers seniors (65+) a property tax credit of up to $500 against school property taxes. However, you cannot claim both the senior credit and the disabled veteran school tax credit—choose whichever provides greater benefit. For 100% disabled veterans, the disabled veteran credit is almost always more valuable.

Does Delaware tax my TSP or 401(k) withdrawals?

Yes, at normal income tax rates (up to 6.6%). However, Delaware's pension exclusion allows retirees age 60+ to exclude up to $12,500 of pension/retirement income—this can apply to TSP, 401(k), IRA, or military retirement (you choose which income source to apply it to for maximum benefit).

I'm stationed in Delaware but claim residency in another state. Can I get these benefits?

No. These are Delaware resident benefits only. If you maintain legal residency in another state (as many active-duty members do), you won't qualify. However, if Delaware offers better tax treatment, you might consider establishing Delaware residency before separation.

How does Delaware compare to Florida or Texas for military retirees?

Florida/Texas advantages:

• No state income tax at all (vs. Delaware's 6.6% top rate)
• Generally lower housing costs (except South Florida/Austin)
• Larger states with more geographic variety

Delaware advantages:

• No sales tax (saves thousands annually)
• Much lower property taxes than Texas (Texas averages 1.6% vs. Delaware's 0.43-0.55%)
• Mid-Atlantic location (3 hours to NYC, DC, Philadelphia)
• Beach access
• Small state means short commutes

Bottom line: Florida/Texas save more on income tax; Delaware saves more on sales tax and property taxes. If you have significant military retirement income, Florida/Texas may save more. If you're 100% disabled and don't have much taxable income, Delaware's property tax benefits shine.

Can I claim the disabled veteran exemption if I own property jointly with my spouse?

Yes, as long as it's your primary residence and you meet eligibility requirements.

What happens to the exemption if I die? Can my spouse keep it?

Un-remarried surviving spouses may continue to claim the exemption if they meet specific criteria. Contact your county assessment office for details on surviving spouse benefits.

Cost of Living Considerations

Before moving to Delaware for veteran benefits, understand the cost reality.

Housing Costs (Median Home Prices, 2025)

• Wilmington: $295,000-$327,000
• Newark: $365,000-$390,000 (University of Delaware area, higher prices)
• Dover: $262,000-$335,000
• Middletown: $407,000-$520,000 (fastest growing area)
• Lewes: ~$400,000-$600,000 (beach town)
• Rehoboth Beach: $1,000,000+ (beach resort, very expensive)
• Georgetown: $280,000-$320,000 (Sussex County seat, more affordable)

State median: ~$300,000-$350,000

Overall Cost of Living

Delaware's cost of living is 0-8% higher than national average (sources vary):

• Housing: 7% lower than national average (but higher than many veteran-friendly states)
• Utilities: 3.5% below national average
• Transportation: Above national average
• Groceries: Near national average
• Healthcare: Near national average

Geographic Cost Variations

Expensive Delaware:

• Northern New Castle County (Wilmington suburbs): Highest costs, closest to Philadelphia
• Newark: University town pricing
• Beach communities: Resort pricing, especially Rehoboth Beach

Affordable Delaware:

• Dover and Kent County: State capital, moderate costs
• Georgetown and western Sussex County: Most affordable
• Milford, Smyrna, Seaford: Small towns, lower costs

Sweet spot for veterans: Dover area and western Sussex County offer best combination of affordability, VA access, and Delaware tax benefits.

Tax Burden Beyond Income Tax

• Sales tax: 0% (huge win)
• Property tax: 0.43-0.55% effective (very low)
• Gas tax: $0.23 per gallon (below national average)
• Vehicle registration: $40-60 annually (moderate)

Where Delaware Veteran Benefits Make the Most Sense

Delaware works well if:

• You're 100% disabled (full property tax exemption + school tax credit = massive savings)
• You want Mid-Atlantic location (access to NYC, Philadelphia, DC, Baltimore)
• You make frequent major purchases (no sales tax saves thousands)
• You prefer small state, short commutes, beach access
• You work in Philadelphia or Baltimore (Delaware residence = lower taxes)

Consider other states if:

• You have substantial military retirement income and aren't disabled (Florida/Texas save more on income tax)
• You need strong military community (Delaware is small; go to Virginia or North Carolina)
• You want defense contractor jobs (limited in Delaware; go to DC area, Virginia)
• You need geographic space (Delaware is tiny—96 miles north to south)

Key Takeaways

1. Zero sales tax is Delaware's secret weapon - Saves $3,000-$4,000 annually vs. neighboring states, every year, for life

2. 100% disabled veterans get exceptional property tax benefits - Full exemption + school tax credit can eliminate $2,000-$5,000+ annual property taxes

3. Military retirement tax relief is improving - Current $12,500 exemption likely expanding to $25,000 or full exemption soon

4. Delaware property taxes are remarkably low - At 0.43-0.55%, you pay a fraction of New Jersey (2.26%), Pennsylvania (1.36%), or Texas (1.6%)

5. Small state means limited options - Delaware has only 3 counties and limited geographic diversity; it's not for everyone

6. Perfect for disabled veterans who want Mid-Atlantic location - Combine full property tax exemption, no sales tax, and proximity to major metros

7. Dover area offers best value - State capital, VA clinic, moderate housing costs, Dover AFB employment

8. Monitor pending legislation - Full military retirement exemption would make Delaware dramatically more competitive

9. Three-year residency requirement - Plan ahead; you can't claim major benefits immediately upon moving

Resources

• Delaware Office of Veterans Services: (302) 739-2792 or (800) 344-9900 | vets.delaware.gov
• Delaware Division of Revenue (taxes): (302) 577-8200 | revenue.delaware.gov
• Disabled Veterans School Tax Credit: finance.delaware.gov/disabled-veterans
• County Assessment Offices:
  • New Castle: (302) 323-2600
  • Kent: (302) 736-2077
  • Sussex: (302) 855-7878
• Delaware General Assembly (track legislation): legis.delaware.gov
• Wilmington VA Medical Center: (800) 461-8262 | va.gov/wilmington-health-care

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Information current as of January 2025. Tax laws and benefit amounts change. Verify specific details with your county assessment office and Delaware Division of Revenue before making financial decisions. Monitor pending legislation for military retirement tax changes.