Author Topic: When do I start worrying about property taxes getting out of hand?  (Read 1791 times)

StarBright

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Sort of a random question and I just want to bounce this off some smart folks - Should we be getting worried about getting stuck in our house due to property taxes?

This will be the fourth year we've lived in our house - historically the property taxes inched up or down for the 20 years before we purchased our home.

Since we moved in our property taxes have gone up almost 60%. My understanding is that the change came because the state changed how it funded schools (about two months after we bought our house).

A new tax was also passed last year so that between 2020-2025 we will see a 20+% increase just for school taxes (that doesn't include whatever tax increases the city proper decides to do). We have a reassessment in two years.

We can afford it because we are good savers/frugal folk and we bought a house well within our budget. We want to be in this school district because our oldest child has some special needs that other nearby districts wouldn't be able to accommodate. These property taxes are still a bit cheaper than private school.

Is this something we need to be actively monitoring? We thought we may want to move 10-15 years down the road, once the kids are out of school- but we also love our town and could see ourselves here forever. Are there any studies out there about property tax tipping points where people no longer buy in?

As of right now it looks like similar areas in our state are all experiencing the same issue - good schools mean less funding from the state every year so the differences are being made in huge property tax increases state wide. I am sort of conflicted about this because I believe strongly in public schools and want to support them, but our taxes are on pace to be more than our (admittedly cheap) mortgage in 5 years.

Thanks for thoughts and discussion!
« Last Edit: January 17, 2020, 12:01:58 PM by StarBright »

mamabear18

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Re: When do I start worrying about property taxes getting out of hand?
« Reply #1 on: January 17, 2020, 11:43:40 AM »
good question following

waltworks

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Re: When do I start worrying about property taxes getting out of hand?
« Reply #2 on: January 17, 2020, 12:14:27 PM »
You can find homes in the mid-atlantic that are essentially impossible to sell because of property taxes, but we're talking $80k homes that have $10k+ of property tax.

If you can provide some more specific numbers, that might help. Here in UT we have horribly funded schools - but we pay only about $3500/year in taxes on a million dollar house. So a third of a percent! Taxes would have to go up a LOT here to make any difference. On the other hand, if you live in a $200k home and taxes are going from $5k to $8-10k... different story.

-W

StarBright

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Re: When do I start worrying about property taxes getting out of hand?
« Reply #3 on: January 17, 2020, 12:32:21 PM »
You can find homes in the mid-atlantic that are essentially impossible to sell because of property taxes, but we're talking $80k homes that have $10k+ of property tax.

If you can provide some more specific numbers, that might help. Here in UT we have horribly funded schools - but we pay only about $3500/year in taxes on a million dollar house. So a third of a percent! Taxes would have to go up a LOT here to make any difference. On the other hand, if you live in a $200k home and taxes are going from $5k to $8-10k... different story.

-W

You are pretty close! We are in a 200k home and taxes have gone from just over 3k when we moved in and will hit just under 6k with scheduled increases for 2021. The tax assessor person warned me that it will likely be higher due to county wide re-assess coming up (which is based on average growth for the whole area, not individual house).

I actually called the tax assessors office to verify that our tax bill was correct. We are apparently in the second fastest growing school district in our state.

We know that the school portion of taxes is set to keep going up until 2025. Kiddos should graduate high school in 2030 and 2033.

My main concern is that we are in a fairly low income area. I'm lucky to work remotely for a company in the mid-atlantic and I make midlantic wages. If I did my same job where I live I'd take a 40-50% paycut. I am honestly not sure how people are affording these taxes and homes and it kind of freaks me out.
« Last Edit: January 17, 2020, 01:30:07 PM by StarBright »

theoverlook

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Re: When do I start worrying about property taxes getting out of hand?
« Reply #4 on: January 17, 2020, 12:37:55 PM »
This is of interest to me, too. Our house is currently valued at $550k, and our taxes are $14,205/year. Pretty rough. When we first moved in, they sent us a valuation letter pegging the value at $789k and the taxes were over $19k/year on that! We contested it and I keep being worried that long term they'll try to creep our valuation back up to the $800k range.

caleb

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Re: When do I start worrying about property taxes getting out of hand?
« Reply #5 on: January 19, 2020, 01:29:01 PM »
We are in a 200k home and taxes have gone from just over 3k when we moved in and will hit just under 6k with scheduled increases for 2021. The tax assessor person warned me that it will likely be higher due to county wide re-assess coming up (which is based on average growth for the whole area, not individual house).
....
We know that the school portion of taxes is set to keep going up until 2025. Kiddos should graduate high school in 2030 and 2033.

PTF, and hoping that someone is able to provide some empirics.

My suspicion is that buyers might not be as tax-averse as you'd expect since the property taxes are delayed and the purchase price is immediate.

For reference, our house is assessed at $260k and we pay $4k.  About $800 of it goes to a set of local voter-approved initiatives, mostly elementary schools.

I didn't think about property taxes much at all when we bought, but if we buy again in the future it will be a consideration.  An extra $1000/year of property taxes is an opportunity cost (invested annually at 7%) of >$100,000 over the life of a 30 year mortgage.  The small costs add up over time.

However, I don't think that math is likely to motivate very many people's behavior.

waltworks

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Re: When do I start worrying about property taxes getting out of hand?
« Reply #6 on: January 19, 2020, 01:49:39 PM »
It impacts the ability of buyers to qualify for a mortgage, and hence directly affects people's decisions on what/how much house to buy.

If you're in a HCOL area, that's probably irrelevant as buyers can often swing whatever (or pay cash). If L/MCOL, not so much. Some back-of-the-envelope numbers:

P&I on a $200k loan right now is hovering around $925. Figure insurance is $75 a month or something to make the math easy, so you're at an even $1000 before taxes. You could qualify for that (no property tax) loan with a gross income around $45k.

Now, if that place has $500/mo in property taxes, you're going to need more like $65k a year in income to qualify. That's a huge pool of eliminated potential buyers in a LCOL area and I'd fully expect it to affect prices and sales.

I think the bigger consideration is the cause of the tax increase. If money is just being shuffled around (ie, sales tax is being eliminated and replaced with higher property taxes) then not a huge issue. If the fire dept pension can't be paid and they have to crank up taxes every year and people are moving away (hello, all of Illinois)... run.

-W

caleb

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Re: When do I start worrying about property taxes getting out of hand?
« Reply #7 on: January 19, 2020, 01:52:37 PM »
@waltworks Good points, I forget how much house prices are driven by financing limits.