Feb

13

The Sneaky Real Estate Tax

February 13, 2008 |

Real Estate Tax

Towns need cash too. They need cash for schools, roads, public services, and social services. They are pressed by two fronts: the socialists: who demand more giveaways by the town to its residents, and inflation: which increases the cost of providing the services for everyone. All that is fine when the house prices are increasing, since the amount of money towns and cities have available for spending depend on the Real Estate Tax or Property Tax collected, which is usually based on a percentage of the assessed value of the property. On a booming housing market the town just receives more money year after year, without having to do anything about it. Great thing.

When the housing market is not so good, property values do not grow — may even decrease. By the same token, the Real Estate Tax Collections can hold steady and God forbids decrease! Towns have a difficult decision to face:

  • Cut down spending -highly unpopular on the socialist front. The advantage is that it may avoid extra taxation. Disadvantage is that some people will stop receiving benefits they where expecting. And towns may elect to cut any type of benefits: it could be broad benefits like schools and roads.
  • Increase Property Tax (percentage) - highly unpopular with the capitalists. Capitalists do not believe government should be messing up with their pockets. An increase in taxation is unpopular — in any way, fashion or form.
  • Fake It - Increase assessed home values, regardless of their current market value trends. Most people are used to seeing an increase in their assessed property value and the corresponding tax to pay. They even feel happy when they see a governmental assessment show that their house is “worth” more. Problem is: it is artificial, nobody will buy you a price for the assessed value, they will buy it for the market value.

Towns and cities are increasingly Faking It. They are inflating the assessed value of a home tens of thousands of dollars more than their market value — and I bet they know it! It is happening all across the nation (according to CNNfn.com). It did happened to us!!

Right now we are in the process of appealing the assessed value of one of our rental properties. It is currently assessed at least $50,000 higher than the market value — at a 1.2% that means $600 that the town is stealing from us every year. Process is long and tedious, and it is still ongoing (will report on the whole story once it is done). The good thing is we have proof in our favor: 1) Properties next to it are not selling for a much lower amount, and 2) the town has marked the basement as “finished” when it isn’t (and was verified by the assessor as part of our appeal).

I advice you to protect yourself against this practice:

  1. Check your property tax bill. Most of the time it is informational — the bank does the payments for you. But check it and double check it. You may find interesting information about your town’s taxation habits. And you may be able to verify that your assessed value is accurate.
  2. Compare with other properties. Go to Zillow or any other website where you can check recent sales and estimated values. Collect information that keeps you up to date on property values.
  3. Abate if necessary. Do not be afraid to call the town and start an abatement process. It could be tedious, but those $600 we want to save is equivalent to 1.5% of the pre-tax income of the average US family. That is about the same amount our lovely Congress is sending some people to spend this summer — and they say it will jump start the economy!

A house is an investment. They go up and down in prices. You must face that reality. Sometimes you loose value. But try to minimize your losses by preventing towns from taxing you unfairly.

March 3rd Update: Real Estate Tax Reduced!  Success!!


Comments

2 Comments so far

  1. Eric Hundin on February 13, 2008 8:48 am

    I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.

    Eric Hundin

  2. Real Estate Tax: Won Battle #1 : This is not finished | Money And Investing on March 3, 2008 6:08 pm

    [...] month we had to abate (appeal) the Real Estate Tax Assessment the town had placed upon one of our rental properties. We got $25,000 shaved off the assessed [...]

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