House Taxes

Understanding housing taxes: as the prices of our homes drop our housing taxes which are suppose be based on our home’s value go up how can that be? More important what can we do about our taxes?

You will find in most cases the taxes being paid by the current owners are less, and considerably less, than the taxes the new owner will be paying. Your tax assessment notification shows two amounts. ( Michigan)1: the current taxable value your house is being taxed at, and 2): the tax value that will be the basis of figuring the new owner’s tax rate. This is generally listed as the State Equalized Value or SEV. To figure what the new taxes will be to a new buyer you multiply the SEV times the effective mills (tax per $1000) rate for that municipality. This rate is available from the treasures or assessors office. Be sure to use the right school district if there is more than one in the municipality. There will be two rates one for the owner occupied homes, usually listed as a homestead rate and one for non-owner occupied property or the non-homestead rate, usually about 18 mills higher. To figure the impact on your monthly payment divide the taxes by 12 add a monthly insurance cost and your anticipated monthly loan amount and that will be the payment, If you are putting down less than 20% your lender may require a PMI insurance payment also and if you live by the water the lender may require flood insurance.

What can you do about the high taxes? Your SEV is to be 50% of the cash value of your house. If you find it is higher than that you should appeal your taxes to get it brought back in line. If you don’t you may find it difficult to find a buyer that can afford or is willing to pay the new taxes. The appeal is generally only allowed for a few days in March and requires a form available from the city or township and justification as to why you feel the SEV is too high. Researching what the city or township will consider as justification is another topic and should be reviewed before you file. There are attorneys that will appeal for the homeowner. The new mills usually take effect the following May.

What about taxes if owner had some of their debt forgiven? The IRS has considered this a taxable event and the forgiven portion was taxed. In December of 2007 Congress made some forgiven debts non-taxable. That covers personal residence only and for 2007 or 2008, Search the IRS site for form 962 for more info.

What about taxes when you sell: If you sell your home for more that you paid for it you have made a gain. Any improvements or additions and certain costs like closing costs, advertising, legal fees can be used to adjust your basis reducing the capital gains. The tax rate on capital gains is between 5 and 28%. Currently the first $500,000 ( for couples filing jointly or $250,000 for a single person) in capital gains is not taxed and congress has considered raising it to $750.000. The $500,000 exclusion is only good it you lived in the house for 2 of the last 5 years.

So if you sell your principal residence and make less than the $500,000 capital gain you will not owe any capital gain tax.

The above information is consider accurate but the advice of a tax consultant is advised