Property Taxes - Holy @!#%

[jzb11]

So I've been running the numbers and contemplating renting vs buying. I've used my state's property tax estimator, and I'm shocked by results I am seeing:

Assessed Value 50K:

3,422
2,000
3,700
2,023

Assessed Value 100k:

6,844
4,000
3,700
4,046

Assessed Value 150k:

10,266
6,000
11,100
6,069

This may not be surprising or shocking to any of you, but as someone who is weighing rent vs buy, this is astounding. In the areas I am looking I could find an apartment for 500-700 per month. It's hard to stomach the idea of property taxes at $400/mo. Holy $@#$ balls batman!

[JoJo]

Anecdote...I bought property in a converted apartment building (big mistake but that's another story).  As apartments the owner was paying taxes of about $20,000 for 20 units in the last year as apartments.  As one of 20 units, I paid almost $4000 that first year. 

[RoseRelish]

Not sure which state you're in, but in Illinois: the "assessed value" is 1/3 of the "market value". That may make the property tax costs a bit more palatable.

[Sid Hoffman]

You might want to do a sanity check and look at Zillow.com to see what the actual property taxes cost is for various homes.  I know in one of my home states the property taxes are something like 9% of assessed tax value, but the assessed tax value was only 1/10th of the full property value, and the FPV might only be 75% of the transaction price.

In other words: A $200k home might have a FPV of $150k, assessed tax value of $15k, and thus property taxes of $1350/year.  Most small SFH in this area thus have annual property taxes of $1000-1600/year.  A more high end home like the kind my parents picked up as a rental property two years ago for near $300k was about $2400/year or $200/month in property taxes.

Different states do taxation however suits them.  For example, in the few states with no income taxes, they generally have high property and/or sales taxes.  Other states might have high income taxes but be more reasonable on sales & property taxes.

[Chranstronaut]

Alternatively, you could look up specific homes in your county database and see the actual exact tax bill.  Usually googling "[my county name] parcel viewer" will pull it up.  I found that Zilllow had some pretty significant errors for property tax in my area.

[Gone Fishing]

My grandfather pays more in property taxes every year than what he paid for his home in the 60's.  This is in a northern state.  Around here, in a southern state, taxes are more palatable but can still vary a lot county by county and not always in the way you would think.  If you have some flexibility on where you can live, also check into water, power, and trash rates.  These can vary quite a bit as well.

[NinetyFour]

I just looked up the property tax for someone I know who lives in a fancy zip code on the East Coast:  $40,000 per year!!!!!!!  No wonder they want to sell their house!!

[Bob W]

Chiming in on the assessed value reduction.  I think in Missouri taxes are based on 1/3 the assessed value in general. 

That said,  I also asked for a reduction when we bought ours and amazingly it went from 1800 to 700 per year.

In Missouri we have low taxes on just about everything compared to most other states.  Our gas, cigarettes and booze is the cheapest anywhere.  (I paid $2.45 for gas today and cigs go for $3 or $4)  So it is no surprise that property taxes are lower.  When I sold homes that I built to out of staters I would quote the annual taxes of $1,800  and they assumed that was a monthly amount.   

Of course to avoid property taxes it is best to buy or own as little property as possible and to use as little as well.   Thus someone with 3 kids in a 110K house is paying way less taxes than a single guy in a 500K house.  (I know makes no sense that someone without kids pays more than someone without)

As a general rule I hate taxes.   The amount of measurable positive outcomes is close to zero in many cases.   Around here we pay about 240K to get a kid through high school and about 50% end up in minimum wage jobs paying 14K.  So it would be sensible to just skip the education and set up an annuity for them paying out 14K per year from age 18.   

I say encourage home schooling and put 18K per year in the kids annuity fund! 

[MoneyCat]

I pay $600 a month in property taxes where I live and that's considered rather inexpensive for my state.  On the positive side, there are a billion public services available for people who need it and the quality of life here is very high.  It's a tradeoff.

[gatorNic]

In places like Cali that won't work because, as I stated above, the owners may have bought the house at a much lower price than the current market value and thus pay much much lower property taxes than someone who bought the house today. But since the rates are fixed at 1% of the purchase price that's easy for anyone to figure out.

Yeah exactly.  So on zillow half the time the property taxes show much lower since they purchased it much lower.  As soon as you buy it it will be reassessed at the new value.  On the positive side in California you could buy a mild fixer, you can buy at lower value, put in a bunch of work to increase value and the property taxes won't be reassessed. So then you will get those capped increases on the lower value.   I believe the only catch is the work cannot change the dimensions, id you can't knock down a wall or add an addition.   

Plus don't forget you should get back some money with deductions on the property taxes.

[jzb11]

Touche.

Property taxes are assessed at 50% of Actual Cash Value of the home (I'm guessing purchase price?)

[MrFrugalChicago]

You look at total cost of owning.

Rent = rent check
Owning = mortgage PI + insurance + taxes +/- appreciation, - tax deductions enabled by mortgage insurance, -repairs to appliances and home

then you look at the non-tangibles, like freedom.

Realizing owning gives you tax advantages that renting does not, so be sure to include that in your math. It also gives you freedom to do whatever you want to the unit. And of course when you go to sell, you can make or lose a lot of money depending on how your property values go.

I just owned a place for 2 years. Paid maybe $200 more a month after everything was added together vs renting. So 24 * 200 = $4,800 extra to own. In those 2 years, my house gained 100k in value, which I recovered most of when I sold (some costs to sell). So I became about 70k richer by owning for 2 years, clearly worked out in this case. Even if I did not gain value, I still did good in that having freedom for 2 years would be worth $4,800 to me. Now if I lost 70k, owning would not have been worth it.

[MoneyCat]

I pay $600 a month in property taxes where I live and that's considered rather inexpensive for my state.  On the positive side, there are a billion public services available for people who need it and the quality of life here is very high.  It's a tradeoff.

Here in Calif our prop taxes just go to fund schools I believe and state income tax and sales tax fund everything else. I don't have kids so don't know the quality or funding of my local school but I imagine your higher prop taxes mean you are probably in a nicer - or at least better funded - school district.

Property taxes pay for schools and New Jersey schools are ranked at the top of the nation.  Property taxes also pay for county and municipal services, including parks and rec, cultural programs, women's health programs, some mental health services, fire, police, and funding for the Arts, among other programs.  State income taxes are also levied and they pay for state level services, but most programs are locally funded and managed in NJ.  There are so many municipalities with their own services that some communities are trying to merge to reduce costs for residents.  My township is actually made up of nine different communities that joined together to reduce costs.

[Rural]

Touche.

Property taxes are assessed at 50% of Actual Cash Value of the home (I'm guessing purchase price?)

Usually the "actual value" is not purchase price but a magical formula based on some comps and a lot of hand waving at the tax office. Varied by state, so it pays to look up how it's determined, but unfortunately in many places there's a lot of wiggle room for the assessors.

[horsepoor]

Here we have a homeowner's exemption, which is either 50% of assessed value, or $80K, whichever is less (I think those are the numbers).  If the house is not owner-occupied, the taxes are more.  The people who just bought our old house for $119K had a mild freakout because they saw our taxes on the house were like $2400, but with their homeowner exemption it was more like $1600/yr.

With our current house, we bought just outside city limits, but still have city services and pay about 60% of what the assessment would be within city limits.  I think right now we're around $1500 on $260 assessed value.  It was $1200 on $190ish the first couple years.

Some of the property tax quotes I see, especially for back east it seems, are insane.

[dude]

The assessed value of my condo just went up 17% for 2015 (though it's still about $100K below actual market value).  Don't yet know what the impact will be on my overall tax bill, but it looks like maybe another $150/year, which isn't that bad.  Taxes last year were only $2,800.  I live in a great city with a mayor who has great vision, and things just keep getting better and better every year, so I have no complaints about paying a bit more to improve our city even more.

[GoldenStache]

I have averaged an annual $500 increase for the past 3 years.

It was interesting hearing about some of the Cali laws but I do not think it is efficient.  It does make me wonder about how many under the table deals happen to avoid the tax bill ( Pay you $200k on paper and $200k in cash under the table) to avoid 2k in taxes each year forever.  I think the value of a home can greatly change and by having a fixed tax rate (1% of what you paid) causes future problems. 

Side note, I hate hate hate property taxes on vehicles.  Land I understand, vehicles is just a money grab by the government.  Tax me a percentage when I purchase the vehicle and never tax me again.       

[frugalnacho]

Touche.

Property taxes are assessed at 50% of Actual Cash Value of the home (I'm guessing purchase price?)

Usually the "actual value" is not purchase price but a magical formula based on some comps and a lot of hand waving at the tax office. Varied by state, so it pays to look up how it's determined, but unfortunately in many places there's a lot of wiggle room for the assessors.

This.  And if you think you found some way to "scam" the tax man and get it artificially low, then they just arbitrarily asses it at a "fair" number.

[brooklynguy]

Oddly NYC does better on this. Taxes on our place are about $2500/yr, and we bought it for $230,000. I assume part of that is due to the NYC income tax, but if you're an early retire, that can be a good tradeoff as you will have fairly little in the way of income.

It's true that NYC property taxes can be relatively low (sometimes extraordinarily so), but there is little rhyme or reason to the tax scheme.  Two identical houses next door to one another can be subject to vastly different property taxes for no apparent reason.

[brooklynguy]

Yeah, I've heard about that! I understand there's also big disparities in how single family homes and multi families and coops and condos are taxed. We're not at the point where tax rates on houses are a concern, alas.

Yes - I think the taxes I now pay on my entire two-family rowhouse are lower than the taxes I used to pay on my previous tiny one-bedroom co-op apartment.

[NoraLenderbee]

I have averaged an annual $500 increase for the past 3 years.

It was interesting hearing about some of the Cali laws but I do not think it is efficient.  It does make me wonder about how many under the table deals happen to avoid the tax bill ( Pay you $200k on paper and $200k in cash under the table) to avoid 2k in taxes each year forever.  I think the value of a home can greatly change and by having a fixed tax rate (1% of what you paid) causes future problems. 
   

There are definitely a lot of issues with the Cali system. However, one benefit is that property tax increases are very predictable. They can't just reassess your house one fine day and raise your taxes 37%.

[Helvegen]

So I've been running the numbers and contemplating renting vs buying. I've used my state's property tax estimator, and I'm shocked by results I am seeing:

Assessed Value 50K:

3,422
2,000
3,700
2,023

Assessed Value 100k:

6,844
4,000
3,700
4,046

Assessed Value 150k:

10,266
6,000
11,100
6,069

This may not be surprising or shocking to any of you, but as someone who is weighing rent vs buy, this is astounding. In the areas I am looking I could find an apartment for 500-700 per month. It's hard to stomach the idea of property taxes at $400/mo. Holy $@#$ balls batman!

Not sure where you are at, but I was considering WNY for a little bit as a final relo destination. I think it is nice. But then I found out how much property taxes were and was floored.

[paddedhat]

I sold a modest ranch in northeastern PA. last year. The taxes are insane and the vast majority go toward the school system. My tax bill was $5100, or 4.1% of the county's determination of fair market value. At closing, the seller was told something that I already knew. The county failed to catch several additions to the home that doubled the size of the place, so the real number should of been in the $8-9K range. There is a fairly small rural area here that, due to gross inequities in state level school funding, suffer from the highest R.E taxes in the state, and rank at the top, nationwide. I moved one county away and dropped my taxes to under $3k. In the center of the state, there are rural areas where the state grossly overfunds local school districts, and taxes can be as cheap as a few hundred a year. This is ALL a clear violation of the state constitution, but rural taxpayers lack the power to protect themselves, so it has gone on for decades.

[paddedhat]

Not sure where you are at, but I was considering WNY for a little bit as a final relo destination. I think it is nice. But then I found out how much property taxes were and was floored.

We were doing a wine tour of the Finger Lakes and ended up discussing R.E taxes with some of the locals. Some of the numbers they threw out there made it hard to not gag, and spit, while tasting. Old, clapped out waterfront Victorians,  in need of total gut remodeling on micro sized lots, and a very busy road a few feet from the back door? Try $24-40K a year in R.E. taxes. They actually talked of older folks having to leave these places in season and rent their homes out as vacation homes just to not lose them for taxes. Not to mention that WNY weather is simply perfect, about 5% of the year, LOL

[CCCA]

It was interesting hearing about some of the Cali laws but I do not think it is efficient.  It does make me wonder about how many under the table deals happen to avoid the tax bill ( Pay you $200k on paper and $200k in cash under the table) to avoid 2k in taxes each year forever.  I think the value of a home can greatly change and by having a fixed tax rate (1% of what you paid) causes future problems. 

   

There is constant political wrangling to change Cali's prop taxes structure every election. It's a boon for homeowners - especially those who have lived in their home a long time or bought in a down market -  but I can see how some aspects of it can seem/be very unfair to people and create economic hardship for the local school districts. We also get a $7,000 tax exemption on the basis every year too.

Also, besides the ability to transfer your prop tax rate to a new house when you are 55 or older, you can also transfer the tax rate between parents (or grandparents) and children - and visa versa - if they buy or inherit your home as their primary residence.. I did this when I bought my Mom's house from her in 1996. She had owned it 20 plus years, the prop taxes were less than $400/year and I was able to transfer that rate to myself as the new owner even though I paid her FMV for the home at around $150K. If I had hung on to that house, even if it had appreciated to the over $500K level in the mid-2000's, my prop tax rate still would have been around $500/year or less. Even if the house appreciated to 2 million my prop taxes would have retained the same tax basis and rate of around $500/year. Definitely can see why people rage against it as well as for it. As a homeowner I'm in the latter camp :-)!

Yes, when you are a new homeowner in California, things seem quite unfair.  But over time, the longer you stay in your home, the more you benefit from taxes not increasing much.  It does seem like there could be a fairer system which would increase taxes faster for older homes (i.e. for homes purchased more than 30 years ago and if your assessed value is below 50% of market value, they can ramp it faster, like 3-4%/yr).  The idea is to bring up the average tax from the older homes, the older ones will presumably still be under taxed but not by as much as currently.   There could be an exemption for older folks who have fixed incomes. 

Our next door neighbors tax is about 15% of our property tax, mostly because they've owned for a long time (an older couple). 

[Poopsio]

Have primary residence in CA in family that was bought in 50s for 50k. Its worth 3 million now. Property taxes are only 1k/yr.

Yeah I won't say much more because I dont want to piss too many people off. I see why our schools on a state level rank so poorly and have such a hard time getting money though. But it pays to buy once and hold onto something.

I hope google, apple and larry ellison pay more taxes before we have to.

[Goldielocks]

I have averaged an annual $500 increase for the past 3 years.

It was interesting hearing about some of the Cali laws but I do not think it is efficient.  It does make me wonder about how many under the table deals happen to avoid the tax bill ( Pay you $200k on paper and $200k in cash under the table) to avoid 2k in taxes each year forever.  I think the value of a home can greatly change and by having a fixed tax rate (1% of what you paid) causes future problems. 

Side note, I hate hate hate property taxes on vehicles.  Land I understand, vehicles is just a money grab by the government.  Tax me a percentage when I purchase the vehicle and never tax me again.     

The problem with CA laws are that they are not indexed to inflation, so if police or fire services increase 3%, and the law caps increases to 2% arbitrally, then taxes creep up for new properties, and long time owners pay less and less of their share of the tax bill.  The area I was in had average tax of $2000 per year, but when we thought of buying, a new house identical to its neighbor would pay over $6500 more per year.  Same tract home built in the 70's or 80's, same age and floor plan.


Lots of 'sold to friend or family' deals at $150k, when home valued at market at $800 k going on.  Zillow listed them, so you can tell.  I would bet there was cash transfer to get /move grandma into a small home added on top of that stated sale price.