Home Ownership and Taxes

[tspforretirement]

Hello All!


Starting with a simple loan like a car we know that most people realize that if you cannot buy the car outright you have to finance it. Therefore you must pay whoever loaned you the money the principle and interest of the loan (which usually includes that one-time state tax). Then, to legally drive you have to have car insurance. Usually there are two separate payments, to the finance company and to the insurance company.

In the case of homeownership, generally, the mortgage payment is paying for everything at once. It is paying for the principle (P), interest (I), taxes (T) and insurance (I), i.e., “PITI”.

Example.

You take out a home loan for $100,000 for 30 years, with a fixed interest of say, 6%.

This means your “PI” (principle and interest) will be about $599.55 per month.

Now, I’ll skip to the second “I” (insurance), and to make everything a round number, the insurance company will cover you for 150.45 a month.

This total for the “PII” is now $750 a month.

Now the important part, “T” (taxes) and the most volatile part of the calculation (IMHO) are that the home is based upon the appraised value by an official city/state government agency. Therefore, when you bought your home it was appraised at $100,000 and the current tax rate was 3.0% then you would owe $3000.00 in taxes for that year. These taxes are taken out as part of the mortgage (divided by 12), therefore, $250.

Now your mortgage is $1000 [$599.55 (P & I) + $250 (T) + $150.45 (I)] per month.

BUT!

This was just the first year. What if the next year, housing was booming and the appraisal rates went up so your house is now worth $140,000, and because of the booming businesses the local government had to raise tax rate so now your house is assessed at 3.0% tax rate. You are thinking, “WOW, my home has appreciated so much – yummy-money!!” Here is your new mortgage calculation:

Principle (P) and Interest (I): $599.55 (Fixed rate – does not change)
Insurance (I): Can change – But this is not a discussion on insurance – Assumes a generous 10% inflation, so $165.50 per month
Taxes (T): $4200 ($140,000 x 3.0%) per year or $350 per month.

Now you are in the second year of new homeownership and your mortgage payment is $1115.05 per month.

All homeowners and potential homeowners should know what they are getting into. If you want to get a general idea of the homeowner’s taxes in your (or future) area you need to contact the local/state government. Most will provide the information for a nominal fee. Some provide it for free.

I provide the following links:

Maryland’s Property Tax Assessment:
http://sdatcert3.resiusa.org/rp_rewrite/

Texas’ Property Tax Assessments:
http://www.texastax.com/

Minnesota’s Property Tax Information/Assessments:
http://www.taxes.state.mn.us/

Now, this brings me back to the original purpose of this thread.

To help others help themselves.

Along with the above posted links the following is the direct link for Bexar County Appraisal District in Texas: http://www.bcad.org/

By law, personal property ownership has to be publicly available. If you go to your county courthouse, local library, and pay a small search fee you can get the same information. Many states and local governments are now offering the information freely online.

If I’m allowed, then the purpose of this thread is for everyone to post the freely available taxable information on homeownership.

If you have an official link that does not require a fee, please let everyone know.

NOTE: Please do your own research, and I don’t mean by the internet. A lot of information is provided via other means. A simple phone call or a walk-in into your local library/county/city clerk works great! (Lately, I’m been told to go to “www….”) J

Hooah!

[Birchtree]

Don't forget you have a $25,000 homestead exemption and all taxes are deductable. Take out a home equity line of credit and pay off other nondeductable interest charges - the home equity line of credit is variable - the interest is deductable and interest rates are dropping again. When you sell you have a $1.2M exemption against capital gains. Just don't buy more house than you really need or you'll be stuck and never be able to buy equities - where the serious money is made.

[tspforretirement]

Don't forget you have a $25,000 homestead exemption and all taxes are deductable. Take out a home equity line of credit and pay off other nondeductable interest charges - the home equity line of credit is variable - the interest is deductable and interest rates are dropping again. When you sell you have a $1.2M exemption against capital gains. Just don't buy more house than you really need or you'll be stuck and never be able to buy equities - where the serious money is made.

Hi Birchtree,

I fully understand taxing advantage of all tax breaks. To include any local taxing agency breaks, veterans breaks, state, and even federal. I was trying to keep it simple.

There are many "breaks", but I would say the majority of new homeowners (and quite a few others) do not realize that they qualify for "something", but they will not get it unless they apply. Most likely apply in writing too.

Good points Birchtree, and if anyone has more of these tax relieving tips, please post. Also, please mention what state you are talking about, and only if necessary the city/county. They are NOT all the same.



Hooah!

[Spaf]

tspforretirement,

Looking back, I'm glad I visited our accountant prior to retirement. Granted we all have different financial and medical conditions. I was advised for IRS purposes to keep a short term minimum mortgage for itemization. The medical bills can really get up there: doctors, referrals, lab-work, prescriptionS, etc.

Spaf

[GGal]

Off topic a little bit.....the last two times the county revalued all the property, I appealed, and won.

This year they went up on my taxes by $650 a year.....I appealed, and the result was only a $50 increase in my taxes.

It pays to appeal.

GGAL

[Frixxxx]

Off topic a little bit.....the last two times the county revalued all the property, I appealed, and won.

This year they went up on my taxes by $650 a year.....I appealed, and the result was only a $50 increase in my taxes.

It pays to appeal.

GGAL

No appeals in CA. You pay what you owe. However the last time I looked, my taxes were based on 40% of my value. They even offer you an exemption from the county when you buy. $7000 for renovations or something like that.

[James48843]

Two things about property taxes in Michigan:

1. in 1994, we changed the way tax increased are done. Taxes are based on 50% of home value, but now your taxes can only go up something like 4% or the rate of inflation, whichever is LESS. So those who hold on to houses a long time have lower tax growth, and therefore lower taxes than others. Helps senior citizens, and those holding on. Value is reset when you sell a house to the new value.

2. Appeals of values to our local tax authorities don't work here. 99% of the time, the local appeal board turns you down, and makes to take it to a second level appeal. It's just the way it works. At the second level, your rate of approvals runs only about 10% of the time . So few people win they pretty much discourage appeals that way.

That said- home ownership is well worth the investment. I hope to have mine paid off in 8 more years (had a 30, then refinanced into a 15, and now am adding an extra 100 bucks each payment which will knock two years off the payments. )

The dream is to be payment free before retirement time.

[tspforretirement]

Hello All,

Two more web-links for Country Appraisal Districts in Texas:

Bell County: http://www.bellcad.org/

Coryell County: http://www.coryellcad.org/

Those in the US Army know that Bell and Coryell Counties house Fort Hood.

Just found this link for MANY CADs in the state of Texas: http://www.taad.org/cad_web_links.html

Hooah!

[nnuut]

Two things about property taxes in Michigan:

1. in 1994, we changed the way tax increased are done. Taxes are based on 50% of home value, but now your taxes can only go up something like 4% or the rate of inflation, whichever is LESS. So those who hold on to houses a long time have lower tax growth, and therefore lower taxes than others. Helps senior citizens, and those holding on. Value is reset when you sell a house to the new value.

2. Appeals of values to our local tax authorities don't work here. 99% of the time, the local appeal board turns you down, and makes to take it to a second level appeal. It's just the way it works. At the second level, your rate of approvals runs only about 10% of the time . So few people win they pretty much discourage appeals that way.

That said- home ownership is well worth the investment. I hope to have mine paid off in 8 more years (had a 30, then refinanced into a 15, and now am adding an extra 100 bucks each payment which will knock two years off the payments. )

The dream is to be payment free before retirement time.

Have 3 more payments on my home here in Georgia, paid off in 12 years, I can't wait to get the raise!!!Attachment 2250

[tspforretirement]

tspforretirement,

Looking back, I'm glad I visited our accountant prior to retirement. Granted we all have different financial and medical conditions. I was advised for IRS purposes to keep a short term minimum mortgage for itemization. The medical bills can really get up there: doctors, referrals, lab-work, prescriptionS, etc.

Spaf

Hello Spaf,

I would agree but with one qualifier – Standard Deduction can be hard to beat.

To itemize taxpayers must surpass the "Standard Deduction", and one of the biggest areas that can be itemized is the interest and taxes paid on a primary home. What I've found is that this deduction is the biggest factor in being able to get over the "Standard Deduction" so that taxpayers can start to throw in other "eligibles".

But, if a home is so close to actually being paid off, would that not be a better "investment" strategy, especially if the plan is to sell.

The biggest problem I have with using medical expenses is that it is difficult to exceed the 7.5% of your AGI (adjusted gross income). Since only this amount can truly be added into your itemization. I guess this would a good time to use an example.

If your AGI were $50,000, then 7.5% of this would be: $3750.

So, if you had paid up to $3750 in IRS acceptable medical payments, it would amount to be $0.00 added to the itemization total.

But, if the total payments amounted to $4000 for that tax year, then $250 can be used in itemization, and then this can be added to the taxes and interest paid into the home mortgage.

And this $250 does not exceed the 2006 “Standard Deduction” for single taxpayers ($5,150), head of household taxpayers ($7,550), married taxpayers filing joint ($10,300), and married filing separate ($5,150).

As I was typing this and re-reading what I was typing, I came to the realization that.... Yes - maintaining a home mortgage does have the tax advantages. Then again owning the "deed" to your home has it's advantages, too. Perhaps, one day I'll see such a deed.



For those who like to do their own research I highly recommend IRS publication 17 and the applicable supporting publications, and in this case, that would be Forms and Instruction for Schedule A/B to the 1040.

All IRS publications, schedules, and instructions can be found at the IRS website at http://www.irs.gov.

Regardless of anything that I may say, or you may read, if you are in doubt always seek the advice of a CPA that KNOWS their taxes.


Hooah!

[tspforretirement]

Off topic a little bit.....the last two times the county revalued all the property, I appealed, and won.

This year they went up on my taxes by $650 a year.....I appealed, and the result was only a $50 increase in my taxes.

It pays to appeal.

GGAL

Hi GGAL,

I did the same for the upcoming 2008 tax year.

History:

Bought a new house (built from the ground up) in 2006.

The 2007 appraisal initially did not show an improvement to the land, but it did catch up before the tax year was over. No problem, it was expected.

But, during the 2007 tax year, “SOMEBODY”, goes out and reassess tax value of property. Well, I received my new value. WOW! Great stuff, if I was a house-flipper! I'm not.

The new assessed value would have increased my mortgage payment (escrow for taxes) by another $150 per month.

Protest went in via snail-mail. Within the week I received a phone call from the local appraisal district to discuss my protest. I've found that not many do this, but the individual who was the “SOMEBODY” who did the appraisal was the one who called me to discuss my protest before it went to a formal hearing.

Guess what? No formal hearing, and my 2008 rates will be same as 2007. Good Stuff!

I'm pretty sure this won't work for 2009.

It doesn't hurt to try, and I highly recommend doing it if you have just cause. (Maybe, even if do not.)




Hooah!

[tspforretirement]

Have 3 more payments on my home here in Georgia, paid off in 12 years, I can't wait to get the raise!!!Attachment 2250

Hi nnut,

I wish I were at that stage, but after rolling into another home, that'll be a few decades (again).

But, just thinking about it is great.

I guess the closest I can look at paying off a substantial debt is the car loan or how about the student loan (yes, I got 'em that old, and another one coming up).

Whew!

Hooah!