Chapter 9 - Real Estates Taxes & Assessments Flashcards
The tax rate can be a percentage of a cent or dollar
1 mill dollar value =
1/10 of a cent
1/1000 of a dollar
or
.001
True or False
Taxes are paid on assessed value which is lower than the market value
True
T FORMULA
for Real Estate Assessment
Top: Taxes Paid
Left: Assessed Value
Right: Tax Rate
General Real Estate Assessments
designed to cover cost of government services like
- Fire
- Police Departments
- Schools
- Roads
Properties value are assessed to determine the taxes
Tax Base
all assessed value put together formulate the tax base
Ad Valorem Tax
Properties assessed according to their value
To Value
Classes of Rates
Properties within the same class are addressed at same rate.
Tax rate is determined by
dividing what is needed by the total assed value of the properties
Amount needed for police van: $50,000
Total assessed value of all properties is $1,000,000
Determine the tax rate =
$50,000 / $1,000,000
= .05, so 5% is the tax rate
What is the difference between general assessment and special assessment
General Assessment is a tax imposed on all of the city
Special Assessment is a tax imposed on only those in a certain area that will benefit from the improvement
Transfer Tax =
seller pays when they transfer home
Capital Gains
A Capital Gain is the profit made on a sale of property.
Difference between sales price and property’s tax basis.
Tax Basis:
Cost of property plus the Capital Improvements
CI
Capital Improvements
Capital Gains Tax
tax levied on the profit made from a sale of property
What law can exclude residential owners from paying Capital Gains tax?
Income tax exclusion
Income Tax Exclusion terms
1) Can only be taken on primary residence
2) Have to live in home two of the last 5 years
3) Exclusion can only be used every 2 years
Maximum exclusion:
- 250,000 (single person)
- 500,000 (married couple)
What law is used for deferring LATER capital gains taxes on investment properties
Tax Free Exchange
1031 Exchange
What are the terms of 1031 Exchange, tax free exchange?
1) For investment property only (no residential)
2) Like for Like (real estate for real estate)
3) Capital gains taxes on an exchange are deferred (paid later, not avoided)
Math Example for Capital Gains Tax
You paid: $100,000 for home
You made CI: $25,000
Tax basis = $125,000
Sell your home: $200,000
Tax basis = $125,000
Capital gain = $75,000
$75,000 is excluded from the capital
What are expenses that can be deducted from income taxes?
Income Tax Deductible Expenses
What types of expenses can be deducted
1) Depreciation on investment properties
2) Mortgage interest
3) Real Estate Taxes (general)
