Chapter 15 - Taxes and Assessments

Question 1

Ad Valorem Taxes

Answer 1

Property Taxes

Question 2

Appropriation Process

Answer 2

The enactment of a taxing body’s budget and sources of money into law

Question 3

Appraises

Answer 3

To estimate the value of something

Question 4

Assessed Value

Answer 4

A value placed on a property for the purposes of taxation

Question 5

Mill Rate

Answer 5

Property tax rate expressed in tenths of a cent per dollar of assessed valuation
$0.04 = 40 mills

Question 6

Tax Certificate

Answer 6

A document issued at a tax sale that entitles the purchaser to a deed at a later date if the property is not redeemed

Question 7

Assessment Rolls

Answer 7

A list or book, open for public inspection, that shows assessed values for all lands and buildings in a taxing district

Question 8

Assessment Appeal Board

Answer 8

Local government body that hears and rules on property owner complaints of overassessment

Question 9

Board of Equalization

Answer 9

A government body that reviews property tax assessment procedures

Question 10

Special Assessments aka Impact Fees

Answer 10

A charge levied to provide public built improvements that will benefit a limited geographical area

Question 11

Improvement District aka Assessment District

Answer 11

A geographical area which will be assessed for a local improvement
- The area receiving the improvement

Question 12

Public Improvement

Answer 12

Improvement that benefits the general public and is financed through the general property tax

Question 13

Go to Bond

Answer 13

A bond issue prepared by government of fiscals that total the unpaid assessments in the improvement district
- Spreads cost of improvement over 5-10 years

Question 14

Front-Foot Basis

Answer 14

A special assessment for the installation of storm drains, curbs and gutters where the property owner is charged for each foot of his lot that abuts the street being improved

Question 15

Basis

Answer 15

• The price paid for the property
• Used in calculating income taxes
• If built, it is the cost of land and construction costs

Question 16

Amount Realized

Answer 16

Selling price minus selling expenses

Question 17

Gain on the Sale

Answer 17

Difference between amount realized and the basis

Question 18

Adjusted Basis

Answer 18

The sales price of the property less commissions, fix-ups, and closing costs

Question 19

Installment Method

Answer 19

Sale of real estate in which the proceeds of the sale are deferred beyond the year of sale

Question 20

The dollar amount of taxes to be levied on a property may be increased by what

Answer 20

Raising the assessment ratio

Question 21

The assessment ratio of real property in a community may be

Answer 21

One hundred percent of its appraised value

Question 22

Tax rates may be expressed as

Answer 22

• A millage rate
• Dollar of tax per hundred dollars of valuation
• Dollar of tax per thousand dollars of valuation

Question 23

The budget for a city requires $600,000 from real property taxes for the current year. The assessed value of all taxable real property in the city is 24 million dollars. What are some examples of how the tax rates would produce the necessary revenues

Answer 23

• 0.025 per $1.00
• $2.50 per $100
• $25 per $1,000
  ($600,000 taxes divided by $24 million total assessed value of all property = .025 = 25 mills)

Question 24

For taxpayers in the top tax bracket the current capital gains tax rate is

Answer 24

For 2013 the capital gains tax rate increases from 15-20% for those in the top tax bracket

Question 25

In a state where the redemption period follows the tax sale, the tax deed is issued to successful bidder

Answer 25

Upon the expiration of the redemption period

Question 26

Tax Certificate

Answer 26

A document issued at a tax sale that entitles the purchaser to a deed at a later date if the property is not redeemed

Question 27

In a state in which the sale of property for delinquent taxes occurs only after the expiration of a redemption period, the purchaser at a tax sale will receive a

Answer 27

Tax deed - they are issued upon the sale of property in those states wherein the sale of the property for delinquent taxes follows the expiration of the redemption period

Question 28

An investor plans to bid on real estate bring offered at a tax auction. Before bidding on a parcel, they would be wise to

Answer 28

Conduct a tile witness to determine what, if any, other encumbrances exist against the property

Question 29

The assessed value of land and buildings in a community is

Answer 29

a matter of public record

Question 30

One of the functions of the Board of Equalization is to:

Answer 30

Their functions include the equalization of assessment between counties (not states), and also between individual property owners. It can review assessments, does not settle disputes nor determine tax rates.

Question 31

A city wants to attract a new manufacturing plant to locate within the city. As an inducement, may the city officials offer an exemption from real property taxes?

Answer 31

Yes, on the basis that the economic benefits outweigh the cost to the public.

Question 32

Special assessments of property tax are made for improvements which benefit

Answer 32

As limited number of property owners.
- Improvements which benefit a limited number of property owners are paid for by special assessments on the properties which benefit from the improvements

Question 33

Could the cost of an extension of sewer lines to a privately owned industrial park be met by the means of special assessment?

Answer 33

Yes. Extension of sewer lines to a privately owned industrial park would benefit a limited number of property owners and would likely be paid for by a special assessment.

Question 34

When an improvement district is created, the cost of the improvements are paid from

Answer 34

Assessments on properties within the district

Question 35

Special assessments are apportioned according to the

Answer 35

Value of benefits received

Question 36

The city is going to install curbs and gutters in one of its neighborhoods that does not presently have them. The special assessment for these curbs and gutters will be levied against individual properties according to the

Answer 36

Benefits received

Question 37

A family purchased their home for $65,000. The only improvements added were landscaping and fencing which cost $2,500. They later sold the home for $90,000 and paid 6% sales commission. In order to make the sale, they took back a purchase money mortgage of $10,000 which they sold to an investor for $7,500. For income tax purposes, the gain realized by the family would be:

Answer 37

$90,000-$5,400 = $84,600 (net sale)
$65,000+$2,500 = $67,500 (net cost)
$84,600-$67,500 = $17,100 (gain)

Question 38

When a person sells land for more than he paid for it,

Answer 38

There is a federal tax applicable to the gain
- Federal capital gains tax would apply from the sale of land but the gain is not taxed by all state governments. Only the sale of primary residences qualify for tax deferment provided another home is purchased within 24 months.

Question 39

A taxpayer must live in their residence how long in order to qualify for the exclusion?

Answer 39

2 years out of the last 5

Question 40

If the tax payer is married the IRS allows for an exclusion of gain on their residence up to:

Answer 40

$500,000

Question 41

The conveyance tax on deed is $0.55 per $100 on the “new money.” A property sells for $100,000 subject to an existing $30,000 loan. What is the amount of tax?

Answer 41

$100,000-$30,000 = $70,000
$70,000 / $100 = 700
700 * $0.55 = $385 tax

Question 42

Whitehurst realized a capital gain of $40,000 on the sale of an investment property which he sold for $100,000. He received a $35,000 cash down payment and carried back a $65,000 mortgage.

Answer 42

Taxes on capital gains are due on the portion of the gains received in any given year, and interest on mortgage is taxed as ordinary income. Another option is to pay all the taxes due at one time.

Question 43

Can local points be claimed as personal tax deduction when a homeowner itemizes on his or her tax return?

Answer 43

No. A homeowner who files an itemized income tax return may take deductions for property taxes, mortgage interest on a personal residence loan as well as interest paid on an improvement bond. Since loan points to assist a VA or FHA buyer are not a seller’s debt, they are not deducible, but can be deducted from the sale price as a settlement cost.

Question 44

Under income tax laws, a seller who takes a carry back mortgage

Answer 44

is discouraged from charging a below-market rate.
- The income tax laws of 1984 and 1985 discourage the charging of below-market rates on carryback mortgages. A seller is not subject to penalties if the rate charged is at least equal to the rate on federal securities of similar maturity.

Question 45

Because of the complexity to income tax laws and their impact on real estate, a real estate licensee should

Answer 45

know when to warn clients that a tax problem may exist or result.

Question 46

A real estate agent has a responsibility

Answer 46

for the quality and accuracy of tax information given by the agent to clients. They need to alert clients to seek tax counsel and for the quality and accuracy of any information given by the agent to clients.

Question 47

Conveyance taxes on the transfer of title to real property are levied by

Answer 47

Some state and local governments, but not federal government.

Question 48

If a property has a market value of $240,000 and is assessed at $100,800, what is the assessment ratio?

Answer 48

$100,800 / $240,000 = 0.42 (42%)

Question 49

A city had total assessed value of all real estate $240 million. The share of the city budget to be paid by ad valorem taxes is $6 million. Your property in that city is assessed at $40,000.
1) What will be the tax rate, expressed in mills?
2) What will be the annual taxes on your property?

Answer 49

1) $6 million / $240 million = 0.025 = 25 mills
2) $40,000 * 0.025 = $1,000

Question 50

In a nearby city, the millage rate is 20 mills for the school budget, 10 mills for the city services and 5 mills for county services. If a property having a market value of $70,000 is assessed at a 50% ratio, what would be the annual property tax?

Answer 50

$70,000 * 0.050 * (0.020 + 0.010 + 0.005) = $1,225

Question 51

Your property is assessed at $65,000 in a community where the assessment ration is 52% of value. Based on this, what is the market value of the property?

Answer 51

$65,000 / 0.52 = $125,000