How is property/land tax calculated in America?
April 14th, 2010 | by admin |Im from Australia, wanting to purchase a home in Amercia, but I am unsure of how property/land taxes are caluated in America. Is it different in each state? Are there any official websites in which I can look at to get a better understanding? What other taxes should I be aware of as a buyer,owner and seller of a home in America? Ive seen search all over the net for this and havent had much luck. Please help me, thanks 
A tax assessor puts a value on a house or land, and the property tax is calculated based on that value times the local tax rate. Rates are different not by state, but by areas within a state – by counties, and by school districts.
2 Responses to “How is property/land tax calculated in America?”
By Judy on Apr 14, 2010 | Reply
A tax assessor puts a value on a house or land, and the property tax is calculated based on that value times the local tax rate. Rates are different not by state, but by areas within a state – by counties, and by school districts.
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By bostonianinmo on Apr 14, 2010 | Reply
Judy has given you a good background on property taxes so I won’t repeat that. I would add that several US States do NOT have an income tax and property taxes in those states tend to be VERY high compared to the national average. There are exceptions to that rule of course — Westchester County in New York comes immediately to mind, with probably the highest ad-valorem property taxes in the nation — but it’s a pretty good general statement.
The states with no income tax at all are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. New Hampshire and Tennessee don’t tax earned income but do tax certain unearned income such as dividends and interest. Of those, most tend to have very high property taxes, except possibly Alaska (due to oil drilling income) and Nevada (due to gambling taxes levied by the state).
On the buying and selling ends there are usually transfer taxes and recording fees for handling the deed work at the county or city level. These tend to be fairly modest, less than 1% of the sale price in most cases but there are exceptions to that as well. Washington State, one of the states with no income tax, has a fairly steep transfer tax levied on the seller. That is negotiable of course, but is normally reflected in the selling price in most "arms length" transactions, i.e. where neither party is under duress or distress to sell or buy quickly.
When you sell, any gain is subject to capital gains taxes. The rate depends upon how long you held the property and whether or not it was your principal residence for 2 of the 5 years immediately prior to the sale. Any gain for property held for one year or less is taxed as ordinary income. Property held for over one year is taxed at the preferential long term capital gains rates that currently vary from 0% to 15% in most cases. Finally, if you owned and occupied the home as your principal residence for any 2 of the 5 years immediately prior to the sale, the first $250,000 in gain if filing Singly or $500,000 in gain if filing Jointly is excluded from tax entirely; this is the biggest tax break on the books in the US today. Depending upon the facts at hand, the tax savings can vary from $37,500 to as much as $175,000. Most states with an income tax follow the Federal exclusion guidelines on this as well resulting in a truly tax-free situation. You can generally claim this exclusion once every 2 years.
Finally, if you are considering investment property, any net income from the rents is taxable. You can deduct your usual and necessary business expenses including mortgage interest, property taxes, insurance, repairs & maintenance, depreciation, management fees, commissions, etc. to arrive at the net income. One feature of US tax laws that catches many investment property owners off-guard however is the recapture of depreciation. Depreciation allowed or allowable (meaning even if you didn’t take the deduction previously) is subject to recapture when you sell. This is taxed as a capital gain (even if the exclusion mentioned earlier applies) at a higher rate than other long term capital gains. The current max rate is 28% for depreciation recapture. The rate depends upon your marginal tax rate so it rises as your income rises.
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