Property Taxes

[ultrarunner]

What does it take to retire and just live the life of leisure and travel at will?

My high school buddies living the life are retired LEOs at age 50/52... minimum 6k a month coming in and lifetime medical... one has a 180k annual pension... he made it to assistant chief and one is still working as chief... too early to know what his retirement package looks like... they haven't put it in the newspaper yet.

 

[sandman2234]

We have a 3% cap here, but it doesn't have much to do with the appraisal, as the appraised value just keeps going up. Since the tax bill can only be raised 3%, most people don't pay the appraised value much attention, until the property is sold, and that is when the new owners get the shaft. They have to pay taxes on the new value, not the cap value. So if you are paying taxes on 100K and the property is appraised at twice that, when you sell it, the new owners see your tax bill at the 100K rate, and the next year they get billed for the $200k rate and they start there at 3% each year.

David from jax

 

[ultrarunner]

Speaking of Taxes on Property...

What about the New Health Care Law imposing a 3.8% tax on home sales and other real estate transactions?

Seems like middle income folks must pay the full tax even if they are only "Rich" for one day... the day they sell their home and buy a new one.

 

[archerm3]

A crazy idea that I was thinking of, to keep these greedy tax assesor's (like the one in my county) at bay, is to make a law/rule, that the county should be forced to purchase any property at the assessed value at the owners discretion...

I know it would never have a chance of getting passed and the logistics of it would be immense..but it would keep the county assessors fair at making realistic valuations when they are trying to compensate for loss of tax base or caps on tax rates.

Reason is that at least in my area...the assessor is using similar properties' "asking prices" for valuations...not closing price. The county board keeps chewing his behind about it in the crowded valuation contestment hearings but somehow this assessor keeps getting reelected out of default...

 

[tulenutn2o]

A elderly Irish friend of mine told me once the government can't run out of money because a dollar only has to change hands 3 times for the goverment to get it back... made me think.

EXACTLY!

 

[Loren49]

Much of the spin on the 3.8% tax is false. This would apply to very few and is on the profit from the sale, not the entire selling price. Also only applies to those with incomes of $200,000 ( couples $250000) and the first $250,000 ($500,000 married) in profit from the sale of a primary home owned at least 5 years is exempt.


A 3.8 Percent 鉄ales Tax on Your Home? | FactCheck.org

A 3.8 Percent 驩?les Tax on Your Home?
April 22, 2010

Q: Does the new health care law impose a 3.8 percent tax on profits from selling your home?
A: No, with very few exceptions. The first $250,000 in profit from the sale of a personal residence won遞 be taxed, or the first $500,000 in the case of a married couple. The tax falls on relatively few those with high incomes from other sources.
FULL QUESTION
I received this e-mail:
This should help stimulate the Real Estate market!
UNDER THE NEW HEALTH CARE BILL - DID YOU KNOW THAT ALL REAL ESTATE TRANSACTIONS ARE SUBJECT TO A 3.8% 驩БLES TAX?
YOU CAN THANK NANCY, HARRY & BARACK (AND YOUR LOCAL CONGRESSMAN) FOR THIS ONE.
IF YOU SELL YOUR $400,000 HOME, THIS WILL BE A $15,200 TAX.
Verified
Higher taxes on real estate investments. The 3.8% Medicare surtax would hit average, middle-class investors in real estate. A middle-class taxpayer who happens to sell real estate for a gain in a particular year would be liable for this new tax, regardless of how low her income might be in other, more typical years.
FULL ANSWER
We閾ｴe been flooded with queries about this one ever since the health care bill became law. At the last minute, Democratic lawmakers decided on a new 3.8 percent tax on the net investment income of high-income persons. But the claim that this would amount to a $15,200 tax on the sale of a typical $400,000 home is utterly false.
The truth is that only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. And even for those who have such high incomes, the tax still won遞 apply to the first $250,000 on profits from the sale of a personal residence or to the first $500,000 in the case of a married couple selling their home.
We can understand how this misconception got started. The law itself is couched in highly technical language that only a qualified tax expert can fully grasp. (This provision begins on page 33 of the reconciliation bill that was passed and signed into law.) And it does say the tax falls on "net gain attributable to the disposition of property." That would include the sale of a home. But the bill also says the tax falls only on that portion of any gain that is "taken into account in computing taxable income" under the existing tax code. And the fact is, the first $250,000 in profit on the sale of a primary residence (or $500,000 in the case of a married couple) is excluded from taxable income already. (That exclusion doesn遞 apply to vacation homes or rental properties.)
The Joint Committee on Taxation, the group of nonpartisan tax experts that Congress relies on to analyze tax proposals, underscores this in a footnote on page 139 of its report on the bill. The note states: "Gross income does not include excluded gain from the sale of a principal residence."
And just to be sure, we checked with William Ahern, director of policy and communications for the nonprofit, pro-business Tax Foundation. "Some home sales would see a tax increase under this bill," Ahern told us, "but it would have to be a second home or a principal residence generating [a gain of] more than $250,000 ($500,000 for a couple)."
So there you have it. The sort of people who would have to pay the tax might include, for example:
A single executive making $210,000 a year who sells his $300,000 ski condo for a $50,000 profit. His tax on the sale of that vacation home would amount to $1,900, in addition to the capital gains tax he would have paid anyway.
An "empty nester" couple with combined income of over $250,000 a year who sell their $1 million primary residence to move to smaller quarters. If they cleared $600,000 on the sale, they would be taxed on $100,000 of the profit (the amount over the half-million-dollar exclusion). Their health care tax on the sale would amount to $3,800 over and above the usual capital gains levy.
However, a typical home sale would not incur any tax. In March, for example, half of all existing homes sold for $170,700 or less, according to the National Association of Realtors. Obviously, none of those sales could possibly generate a $250,000 profit, and so none would be subject to the tax.
Thus, for the vast majority, the 3.8 percent tax won遞 apply. The Tax Foundation, in a report released April 15, said the new tax on investment income (including real estate) "will hit approximately the top-earning two percent of families" when it takes effect in 2013.
Footnote: Some of the chain e-mails that claim ordinary home sales will be taxed include a copy of an article written by Paul Guppy, a policy analyst with the conservative Washington Policy Institute (that逞ｴ Washington state, not Washington, D.C.). The article appeared March 28 as an op-ed in the Spokane, Wash., Spokesman-Review, and Guppy claimed that "[m]iddle-income people must pay the full tax even if they are 蝟ｪich for only one day." That brought a quick rebuttal from Sara Orrange, the government affairs director of the local Realtors association. She wrote a letter to the newspaper calling Guppy逞ｴ article "inaccurate" and saying, "Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made." In a news article the next day, business reporter Bert Caldwell confirmed that only "a very few" home sellers would pay the 3.8 percent tax.
The Internal Revenue Service says that to qualify for the $250,000/$500,000 exclusion, a seller must have owned the home and lived there as the seller逞ｴ "main home" for at least two years out of the five years prior to the sale.

This tax will affect the top 2% wage earners who sell a qualifying property. (as stated in the article) This is not a middle class tax.

Loren

 

[ultrarunner]

If I understand correctly... even if I earn no where near 250k... I will incur the tax if I sell the apartment building I bought back in the 1980's because the basis in near zero, except for the land and upon sale... I would have maybe 300k Taxable... so another nearly 12k to the tax man for "Health Care"?

It says the law is "Couched in Highly Technical Terms" so I will probably need to pay another thousand to a CPA just make sure?

 

[Loren49]

ultrarunner I believe in your example that would you would qualify for the $500,000 exclusion (if it was your primary residence) so you would not pay. If you do not qualify because it was an investment you would then add the $300,000 to your income. Example $50,000 income + $300,000 = $350,000. Now subtract $250,000. So you would pay 3.8% of $100,000 or $3,800 in tax. Clearly a primary residence is treated different than a for profit investment. (real estate , stocks, etc) Say you sold for $1,000,000 and you had $400,000 in it so you show a profit of $600,000. After the $500,000 exclusion you would have $100,000 to combine with your income. (if primary residence) Any amount over the $250,000 total (income plus sale results wound be taxable) If your income was $200,000 then your total would be $300,000 and you would pay 3.8% of $50,000. ($1900) Note that this would be the tax on a profit of $600,000 (tax rate of .3%) (If fit was taxed as regular income the rate would be about 30% or $18000)

Just for thought - how much tax would be fair for a person who has no earned income but has enough investments (real estate, stocks etc) so that they generate $150,000 a year in profits? For the average person with earned income of $150,000 the taxes would be over $20,000.(not counting SS $6000+) Should the investor pay none?

Loren

lOREN

 

[dooleysm]

An update on my original post...

My dad went in to talk to the assessor (or at least someone in her office) on Friday. He was told that his land was re-assessed as 'residential' since he is not living there and farming it. Now, his use of the land is identical to its use by the previous owner; he does nothing to it. It just sits there. It's about 3 acres of former pasture and 27 acres of woods. He was told that the previous owner (who still owns 100's of surrounding acres) files income taxes as a farmer, so his land is considered agricultural and is taxed at the fair use rate vs. the fair value rate. Understandable, except that the 60 or so acres that he has left surrounding our property is unused. It just sits there. He bush hogs it every other year or so, that's it. No animals, doesn't cut hay off it, doesn't harvest anything or use it in any way. His surrounding land is assessed at $600/acre. Dad's land is assessed at $2100/acre. Mine is assessed at $2200/acre. I'm not buying it.

I haven't seen anything yet about how land gets classified as agricultural, residential, whatever. I don't for one minute believe that the assessor is looking at IRS records to find out how you file your income taxes. I'm not entirely sure that would be legal. If there's some other way to declare your land as agricultural, I haven't found it...yet. I do more agricultural type things with my land than my neighbor does. My dad does just as much agricultural with his land as our common neighbor as well.

I talked to my dad about this before I went in to the assessor. I filed my appeal and was told hearings would begin in June. That gives me more time to track down this issue of how land gets qualified as agricultural. I have a feeling it's at the assessor's discretion.

 

[MossRoad]

An update on my original post...

My dad went in to talk to the assessor (or at least someone in her office) on Friday. He was told that his land was re-assessed as 'residential' since he is not living there and farming it. Now, his use of the land is identical to its use by the previous owner; he does nothing to it. It just sits there. It's about 3 acres of former pasture and 27 acres of woods. He was told that the previous owner (who still owns 100's of surrounding acres) files income taxes as a farmer, so his land is considered agricultural and is taxed at the fair use rate vs. the fair value rate. Understandable, except that the 60 or so acres that he has left surrounding our property is unused. It just sits there. He bush hogs it every other year or so, that's it. No animals, doesn't cut hay off it, doesn't harvest anything or use it in any way. His surrounding land is assessed at $600/acre. Dad's land is assessed at $2100/acre. Mine is assessed at $2200/acre. I'm not buying it.

I haven't seen anything yet about how land gets classified as agricultural, residential, whatever. I don't for one minute believe that the assessor is looking at IRS records to find out how you file your income taxes. I'm not entirely sure that would be legal. If there's some other way to declare your land as agricultural, I haven't found it...yet. I do more agricultural type things with my land than my neighbor does. My dad does just as much agricultural with his land as our common neighbor as well.

I talked to my dad about this before I went in to the assessor. I filed my appeal and was told hearings would begin in June. That gives me more time to track down this issue of how land gets qualified as agricultural. I have a feeling it's at the assessor's discretion.

Tell your dad to look into putting all of his land except the one acre around his house into a classified wildlife habitat or classified forest. Indiana has a good program for that. Go to your county extension agent for assistance and/or contact your state forester. It is a program worth looking into. You maintain control of the land. You can hunt, fish, harvest timber as you please. Main stipulation is if you sell it off for profit you may have to pay back taxes, so look into it closely. It will really lower the property taxes.

 

[2manyrocks]

Tennessee has a greenbelt program that you can put your land in that will keep it taxed at the lower rates even if it just grows up in weeds. Maybe your state has something like it.

You need to find out the real criteria for the assessment before you go to the hearing or they'll run you into a dead end and keep the land at the higher assessment.

 

[dooleysm]

Regarding dad's land, he doesn't live there, it's just 30 acres he bought next door to me that we use for hunting. We had a meeting with the district forester last spring, who just happened to be dad's college room mate. He offered to put dad's land into the Classified Forest program, but dad wasn't interested, as his property taxes were low at the time. That is an option he will absolutely pursue if he doesn't get relief in his assessment.

I've been reading some more about it, and still as best as I can tell, the determination of whether land is classified as agricultural is pretty subjective. There is another document I am going to attempt to locate that I think may shed some more light on the subject. So far it appears to me that my property (minus my 'homestead' acreage) is agricultural.

 

[scootr2d]

An update on my original post...

My dad went in to talk to the assessor (or at least someone in her office) on Friday. He was told that his land was re-assessed as 'residential' since he is not living there and farming it. Now, his use of the land is identical to its use by the previous owner; he does nothing to it. It just sits there. It's about 3 acres of former pasture and 27 acres of woods. He was told that the previous owner (who still owns 100's of surrounding acres) files income taxes as a farmer, so his land is considered agricultural and is taxed at the fair use rate vs. the fair value rate. Understandable, except that the 60 or so acres that he has left surrounding our property is unused. It just sits there. He bush hogs it every other year or so, that's it. No animals, doesn't cut hay off it, doesn't harvest anything or use it in any way. His surrounding land is assessed at $600/acre. Dad's land is assessed at $2100/acre. Mine is assessed at $2200/acre. I'm not buying it.

I haven't seen anything yet about how land gets classified as agricultural, residential, whatever. I don't for one minute believe that the assessor is looking at IRS records to find out how you file your income taxes. I'm not entirely sure that would be legal. If there's some other way to declare your land as agricultural, I haven't found it...yet. I do more agricultural type things with my land than my neighbor does. My dad does just as much agricultural with his land as our common neighbor as well.

I talked to my dad about this before I went in to the assessor. I filed my appeal and was told hearings would begin in June. That gives me more time to track down this issue of how land gets qualified as agricultural. I have a feeling it's at the assessor's discretion.

Throw some goats on it to keep the Brush down.
register it as small farm - probably costs 35.00.
Create a small business (buying and selling goats to promote healthy breeding stock)
and re-file it as AG land.
write off your tractor and implements used over a period of years to maintain
the AG land for your business.

 

[2manyrocks]

, the determination of whether land is classified as agricultural is pretty subjective.

Look at this carefully--it might be loosely defined or they might look at whether there is any active "farming" in the sense of raising crops, animals, etc.

 

[dooleysm]

I found an assessor's guidebook put out by the state last night. I read through chapter 2, which is 130 pages and seemed to be the most appropriate. Again, it seems subjective, but it does define a variety of agricultural subtypes, several of which clearly match up to my use of my land. Things like tillable land - vegetable crop, poultry farm, legal ditch and associated access land, fallow pasture, non-tillable land - less than 50% canopy cover. There is no minimum acreage for any of the types.

As far as registering myself as a farmer through whatever means, if it is a federal registration (something along the lines of a Classified Forest), that is considered sufficient for an agricultural designation. It is clearly not required though.

I have printed off these sections and will bring them along to my 'hearing'.

For what it's worth, I talked to a buddy that lives SE of Indianapolis, near Shelbyville. He's got 3 chickens. His wife talked to the assessor and got their land re-assessed as agricultural. He said it couldn't have been easier.

 

[Bird]

For what it's worth, I talked to a buddy that lives SE of Indianapolis, near Shelbyville. He's got 3 chickens. His wife talked to the assessor and got their land re-assessed as agricultural. He said it couldn't have been easier.

I think a lot depends on the individual assessor, or that particular jurisdiction. I know in 1995, when I talked to the assessor, he said selling pecans from a dozen trees, selling fruit and vegetables from a garden and a couple of plum trees, raising and selling rabbits wouldn't do it, but if there was one cow on the property, it qualified. And I was already letting a neighbor use my pasture for his cattle.:laughing:

 

[Dargo]

I found an assessor's guidebook put out by the state last night. I read through chapter 2, which is 130 pages and seemed to be the most appropriate. Again, it seems subjective, but it does define a variety of agricultural subtypes, several of which clearly match up to my use of my land. Things like tillable land - vegetable crop, poultry farm, legal ditch and associated access land, fallow pasture, non-tillable land - less than 50% canopy cover. There is no minimum acreage for any of the types.

As far as registering myself as a farmer through whatever means, if it is a federal registration (something along the lines of a Classified Forest), that is considered sufficient for an agricultural designation. It is clearly not required though.

I have printed off these sections and will bring them along to my 'hearing'.

For what it's worth, I talked to a buddy that lives SE of Indianapolis, near Shelbyville. He's got 3 chickens. His wife talked to the assessor and got their land re-assessed as agricultural. He said it couldn't have been easier.

I also live in Indiana and we couldn't have a worse assessor. I can't recall if I mentioned it in this thread, but I bought a rent house last year for $64k. I just got my property tax bill for that home. My bill was based on a value of $98,800. My understanding is that your property in IN is supposed to be based on actual value. Paying taxes for last year, which is what this bill is for, how can they be so dumb as to miss the value by that much especially when it shows right on the assessment what I paid for the home?!??

 

[MossRoad]

Regarding dad's land, he doesn't live there, it's just 30 acres he bought next door to me that we use for hunting. We had a meeting with the district forester last spring, who just happened to be dad's college room mate. He offered to put dad's land into the Classified Forest program, but dad wasn't interested, as his property taxes were low at the time. That is an option he will absolutely pursue if he doesn't get relief in his assessment.

I've been reading some more about it, and still as best as I can tell, the determination of whether land is classified as agricultural is pretty subjective. There is another document I am going to attempt to locate that I think may shed some more light on the subject. So far it appears to me that my property (minus my 'homestead' acreage) is agricultural.

If he is never going to build on it or crop farm it, he will most likely never get a better break on his taxes by going Classified Forest. It is even less than Ag. And he can hunt, harvest timber, etc... and still use the land.

 

[brin]

Just a word of caution about changing the classification of your land to save on Property taxes...Here in Ga. we have a conservation reserve program you can place your property in and save a great deal on your property taxes for a period of 10 yrs. and then it is up for renewal Here is the warning, at least here in Georgia if you sell your property during the time it is in reserve or otherwise withdram it from the program you have to pay a penalty and pay back all of the property taxes you saved and believe me it is a substantial amount. You want to be absolutely sure about your plans before you enter a program like this if your state is the same.

 

[dooleysm]

I also live in Indiana and we couldn't have a worse assessor. I can't recall if I mentioned it in this thread, but I bought a rent house last year for $64k. I just got my property tax bill for that home. My bill was based on a value of $98,800. My understanding is that your property in IN is supposed to be based on actual value. Paying taxes for last year, which is what this bill is for, how can they be so dumb as to miss the value by that much especially when it shows right on the assessment what I paid for the home?!??

From everything I've read, you have an excellent case to take before the assessor. Assessment values should be based on surrounding properties and recent sales. If you bought it for $64k a year ago it's obviously not worth $98,800 now. If you file an appeal with the assessor and can't come to an agreement with that person, your appeal gets bumped up to the county's property tax board (it has an official name, which I don't recall at the moment). Fill out Form 130 and give it to your assessor, it's very easy to start the appeal process.