Chapter 15 - Taxes and Assessments Flashcards
Ad Valorem Taxes
Property Taxes
Appropriation Process
The enactment of a taxing body’s budget and sources of money into law
Appraises
To estimate the value of something
Assessed Value
A value placed on a property for the purposes of taxation
Mill Rate
Property tax rate expressed in tenths of a cent per dollar of assessed valuation
$0.04 = 40 mills
Tax Certificate
A document issued at a tax sale that entitles the purchaser to a deed at a later date if the property is not redeemed
Assessment Rolls
A list or book, open for public inspection, that shows assessed values for all lands and buildings in a taxing district
Assessment Appeal Board
Local government body that hears and rules on property owner complaints of overassessment
Board of Equalization
A government body that reviews property tax assessment procedures
Special Assessments aka Impact Fees
A charge levied to provide public built improvements that will benefit a limited geographical area
Improvement District aka Assessment District
A geographical area which will be assessed for a local improvement
- The area receiving the improvement
Public Improvement
Improvement that benefits the general public and is financed through the general property tax
Go to Bond
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
Front-Foot Basis
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
Basis
- The price paid for the property
- Used in calculating income taxes
- If built, it is the cost of land and construction costs
Amount Realized
Selling price minus selling expenses
Gain on the Sale
Difference between amount realized and the basis
Adjusted Basis
The sales price of the property less commissions, fix-ups, and closing costs
Installment Method
Sale of real estate in which the proceeds of the sale are deferred beyond the year of sale
The dollar amount of taxes to be levied on a property may be increased by what
Raising the assessment ratio
The assessment ratio of real property in a community may be
One hundred percent of its appraised value
Tax rates may be expressed as
- A millage rate
- Dollar of tax per hundred dollars of valuation
- Dollar of tax per thousand dollars of valuation
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
- 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)
For taxpayers in the top tax bracket the current capital gains tax rate is
For 2013 the capital gains tax rate increases from 15-20% for those in the top tax bracket
In a state where the redemption period follows the tax sale, the tax deed is issued to successful bidder
Upon the expiration of the redemption period
Tax Certificate
A document issued at a tax sale that entitles the purchaser to a deed at a later date if the property is not redeemed
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
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
An investor plans to bid on real estate bring offered at a tax auction. Before bidding on a parcel, they would be wise to
Conduct a tile witness to determine what, if any, other encumbrances exist against the property
The assessed value of land and buildings in a community is
a matter of public record
One of the functions of the Board of Equalization is to:
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.
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?
Yes, on the basis that the economic benefits outweigh the cost to the public.
Special assessments of property tax are made for improvements which benefit
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
Could the cost of an extension of sewer lines to a privately owned industrial park be met by the means of special assessment?
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.
When an improvement district is created, the cost of the improvements are paid from
Assessments on properties within the district
Special assessments are apportioned according to the
Value of benefits received
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
Benefits received
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:
$90,000-$5,400 = $84,600 (net sale)
$65,000+$2,500 = $67,500 (net cost)
$84,600-$67,500 = $17,100 (gain)
When a person sells land for more than he paid for it,
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.
A taxpayer must live in their residence how long in order to qualify for the exclusion?
2 years out of the last 5
If the tax payer is married the IRS allows for an exclusion of gain on their residence up to:
$500,000
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?
$100,000-$30,000 = $70,000
$70,000 / $100 = 700
700 * $0.55 = $385 tax
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.
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.
Can local points be claimed as personal tax deduction when a homeowner itemizes on his or her tax return?
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.
Under income tax laws, a seller who takes a carry back mortgage
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.
Because of the complexity to income tax laws and their impact on real estate, a real estate licensee should
know when to warn clients that a tax problem may exist or result.
A real estate agent has a responsibility
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.
Conveyance taxes on the transfer of title to real property are levied by
Some state and local governments, but not federal government.
If a property has a market value of $240,000 and is assessed at $100,800, what is the assessment ratio?
$100,800 / $240,000 = 0.42 (42%)
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?
1) $6 million / $240 million = 0.025 = 25 mills
2) $40,000 * 0.025 = $1,000
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?
$70,000 * 0.050 * (0.020 + 0.010 + 0.005) = $1,225
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?
$65,000 / 0.52 = $125,000
