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