Entries Tagged 'Taxes' ↓

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Local government officials must be getting nervous if they are reading this story. New York City is one of the few hot warm spots in the real estate market and is showing a significant weakness in tax revenue collection. What are the mayors of Stockton and San Diego thinking as they try to keep all the bloated city services going?

So many local governments allocated their real estate tax surpluses to special vote buying constituent services that made the voters feel good without fulfilling their basic needs.  Now they will fight to keep these services going even after the real estate tax well has run dry.

The true catch 22 of the matter is when the homeowners realize they are being assessed for much more than their properties are worth and start mass appealing their assessments. That will be fun to watch as the politicians start scurrying.

Both of New York City’s underpeforming real estate tax revenues are based on sales of offices, warehouses, apartments and single-family homes. The number of deals has slowed, though with some properties, such as Manhattan apartments, prices still rose substantially in the last quarter.
Real property transfer taxes fell 12.7 percent, or nearly $162 million, from the same period a year ago, according to Democratic Comptroller William Thompson. At the same time, mortgage recording tax collections were down 20.1 percent, or $234 million. The Guardian

Fulton County, Georgia, which encompasses the city of Atlanta is about to raise taxes significantly on many of it’s commercial properties. The median tax increase will be 44 percent, meaning that half of the properties will see increases of more than that.

For those with tenants and a fixed rent this could really hurt ones cash flow. Such a drastic hit to the bottom line will definately have an impact on property values.

Assessors have spent the past 30 days trying to get the word out to business property owners, real estate agents, property managers, tax consultants and others so the figures won’t be so shocking when they arrive in mailboxes as soon as Tuesday.
The numbers are going up so dramatically because Fulton has just completed a two-year, $4.1 million project to revalue every commercial property everywhere in the county, including the 14 municipalities. The county brought in consultants to review the market and update records for the first time in 15 years.
The change is so dramatic that Fulton officials say the tax base, in a county with properties already valued by assessors at $136 billion, should jump about $18 billion from the commercial revaluation alone. via ajc.com.

This is a tough question. Who do you trust more, the government to be honest on reducing property taxes as values go down or the company that is charging a fee to help you appeal the same taxes?

The reason this came up is the Alameda County District Attorney is investigating two companies for providing a service that will appeal your property taxes for you. Now this same county has most of the homes in it on the tax rolls for much more than they are presently worth. And the funding for the District Attorneys office does come out of the same funding bucket. But there is no conflict of interest there, is there? (sarcasm)

And then you look at it from  the prism of an accountant. Do you not pay them a fee for their expertise to try to minimize your tax burden? The argument they are using is that the service is free to the consumer already, but can’t you go to the library and get the IRS forms for free? Why use an accountant or should the DA look at the whole accounting industry?

That is why I think that the Alameda DA is engaged in an outright intimidating behavior to discredit these companies so they will not harm their livelihood. How dare they think they can try to help out  homeowners who are overpaying their property taxes in a declining market and take money out  of the DA’s budget.

If the DA’s office had the ability to feel shame they probably would be a bit embarrassed right now. But that would be a long shot.

The Alameda County District Attorney’s Office is investigating two companies soliciting homeowners for $95 to $250 for property tax services they could receive for free, a deputy district attorney said Monday.
Deputy District Attorney David Lim said services like those offered by Connection Plus Inc. of Foster City and San Diego County-based Property Tax Adjusters Inc. could be illegal…

“At first blush, it looks like it may not be illegal, but we need to investigate if there’s a crime there,” said Lim, who handles real estate fraud. “We don’t know what they’re doing once they meet with people.” via San Jose Mercury News.

Anne Arundel County in Maryland is looking to raise it’s impact fees for new construction from nearly $5,000 to $21,000. The fees are governments way of recouping money they invest to support the homes with city infrastructure.

You have to wonder if the motivation now for these fees are twofold. First, with the housing slowdown in the region tax revenue have decreased dramatically as property values are decreasing and sales are slower. The need to find revenue to feed the bureaucratic beast is veracious.

And that leads into the second point. By raising the impact fees by $16,000 dollars they essentially raised (or supported) the property values in the county by the same $16,000. Think about it, if you have to spend more on a new home that raises the value of present inventory.

Multiply $16,000 by the amount of homes in the county and then by the local tax rate and you will see that they have just created a tax increase and only impacted the newer residents.

When it comes to government actions, always follow the money.

A proposal to tack more than $21,000 onto the price of building a four-bedroom home in Anne Arundel County has incensed homebuilders and developers, who predict a sweeping bundle of increases to impact fees could deflate the growth boom around Fort Meade and drive them into other jurisdictions.

County Executive John R. Leopold has said the current impact fee of $4,904 a house - typically passed on to buyers - is long overdue for an increase because it doesn’t cover the “full freight” of building roads and schools and providing county services. He has said that if higher fees, such as $1 million more for a 200,000-square-foot office complex, slow down “meteoric” growth, “that is not an undesired outcome.”

His proposal, which would make Anne Arundel’s impact fees perhaps the highest in Maryland, has won cheers from environmentalists and civic leaders, and has helped him fend off criticism that he’s too cozy with developers, who gave his campaign more than a quarter-million dollars last year. via  baltimoresun.com.

Collecting property taxes is difficult, collecting back taxes from foreign countries is even harder. New York City is going after 3 countries over a partial use provision in their embassies to collect millions of dollars in taxes.

The buildings in question are owned by the governments of India, Mongolia, and the Philippines, and house staff and offices for their missions to the United Nations.

Under international treaties, consulates and embassies tend to be tax exempt. But the city claims it has a right to collect taxes on parts of the buildings used for non-diplomatic purposes. Since not all the floors of the buildings are used for diplomatic purposes, the judge says the countries have to pay some local taxes.

The Supreme Court ruled last June that countries could be sued over back taxes in United States courts, leading to the city’s lawsuit.  via NY1: Top Stories.

With the record rise in residential and commercial real estate over the past few years their has been a great deal of profit for real estate partnerships. Now a former IRS agent and specialist in partnership taxation says  that billions are going unreported to the government.

Either through the inaccurate reporting on the 1231 exchange tax form of capital gains or just plain failure to report income on a sale, some real estate investors are looking to bypass Uncle Sam and not give the devil government it’s due.

Now I am all for working hard to minimize ones tax bill, but my advice is to make sure that you do it legally. If you have claimed depreciation for 15 years on a property, report it. It is one thing to use every legal trick in the book to maximize your return. I applaud you. But if you end up being one of the 1 in 356 real estate partnerships that get audited, have your ducks in a row.

“Nationally, in 2005, at least $20 billion of gain from real estate tax shelters was unreported,” he said, “and in New York State, the epicenter of the business, the figure may be as high as $5 billion.”
Those figures suggest that the federal government was shorted $5 billion and New York State about $385 million from real estate tax shelter partnerships.
Just one form of real estate partner income, known as a 1231 gain after a section of the tax code, totaled $181.3 billion in 2005, up 87 percent over 2004. The actual gain, Mr. Curnutt said, was at least $232 billion and probably much more.via The New York Times.

With a weak dollar and a morbidly slow market in Florida, the real estate firm of Michael Saunders and Co. has teamed up with the European Real Estate Network. This alliance is a smart move. With slightly declining prices in US dollars and rapidly declining prices in British Pounds or Euros, real estate in the United States is rapidly becoming a bargain for European investors.

And isn’t this how capitalistic economies work. When supply is too great, prices drop. When prices drop far enough then the value for distant buyers increases and they make the effort to enter a market that they normally would not. When this occurs enough capital comes into the market to cause it to stabilize and rebound.

The biggest factor for overseas buyers is the complicated tax laws and conflicts that have to be addressed. If you are looking into attracting international buyers try to team up with a excellent tax accountant or attorney to make sure that the buyers are not put in a bad position to get the deal done.

On the heels of signing a deal to become part of the European Real Estate Network, Michael Saunders & Co. has formed a new alliance to help in international buying and selling, spokesman Tom Heatherman said Monday.
Mayfair International Realty is teaming up with Michael Saunders & Co. to attract international buyers. The company consists of 125 brokerages with 350 offices throughout the United Kingdom. “This completes the whole package,” Heatherman said.
The European Real Estate Network has representatives in 10 European countries and now, in addition to its affiliation with Michael Saunders & Co., has a New York affiliate as well. via Bradenton.com

As we talked about yesterday in the post Local Government and Their Lust For Property Taxes, local governments are facing a reduction in property tax revenue. These politicians will not reduce the spending they have on the books unless their is a full blown revolt by the taxpayers. So the only option is to raise taxes elsewhere.

Here are some examples from Financial Week on how government officials are failing to reduce expenses and instead milking the cash cow by taxing their citizens and businesses even more.  

• Wisconsin broke the nation’s longest-running budget stalemate last month by approving, among other things, a $1-a-pack cigarette tax increase while rejecting a proposed new tax on hospitals.
• Meanwhile, the governor in once puritanical Massachusetts is in favor of converting a racetrack in Boston into a full-blown casino.
• And in Chicago, Mayor Richard M. Daley has proposed a fee of 15 cents a square foot on large development projects. The fee could generate about $2 million in revenue next year for the city.
  “This is not a fee on a small interest group,” William Bornhoff, managing director of the Chicago Real Estate Alliance, a developers group, told Financial Week sister publication Crain’s Chicago Business. “This increases the cost of doing business in Chicago.” In addition, a political fight is playing out in Michigan, where Gov. Jennifer Granholm has signed into law new sales and use taxes, the bulk of which would be paid by businesses purchasing services from other businesses.

  The main reason for all these new revenue generators is to help make up for the expected sharp drop in property tax revenue cities face as the impact of the slumping housing market hits home, sending once balanced budgets deep into the red. via Financial Week.

The lust of government for your money is a known fact. They tax our income, our savings, our property, and our death. Nothing is sacred to these folks as long as they get their money. But one of the biggest cash cows for local governments has been the property tax. This allows the local governments to give generous salaries and exorbitant benefits to our public servants based upon increasing property values.

If there is not enough leeway to raise the taxes then all you have to do is reassess property values and the money will flow in. For example the home I live in has seen the taxes go up from $2,800 in 2001 when we bought the home to $4,600 when they are due on the 15^th of this month. (Yes, I know, I am not in an unbiased and generous mood as I write this post anticipating writing the property tax check this week.)

Here is columnist Stephen Henderson’s analysis of what is happening in Detroit these days.

Let’s just put it this way: The yearly growth in government costs (from increases in school funding to expansion in retiree health care costs to negotiated raises for employees) has historically been covered by the inflationary real estate market yielding more tax revenue. Just a few years ago, growth of two or three times the rate of inflation was nothing.
But wipe that out, as has apparently happened in Oakland County, and all of a sudden the ledger doesn’t add up anymore. Costs keep growing but government revenue stays flat, or even declines. Detroit Free Press

But with the property value downturn the government will not be able to raise the assessment to pay for their cousin to pick up a nice check and a nicer pension. Detroit is facing this scenario and they are loaded with unbudging unions. Parts of Phoenix, South Florida, and large swaths of California are facing shrinking property values.

I am sure that the assessors will not be lowering the property values as quickly as they raised them over the past five years of large increases. The projects and pork must be funded. But it is the right of every taxpayer to challenge their assessments and potentially lower their property tax.

So I strongly recommend when the local tax bills in your county come out, look them over correctly. And if the valuations are out of whack, make sure you appeal with your local tax office. Because I hate to say this, but I truly believe that the largest purveyor of tax fraud in the next couple of years will be the county assessors office and your local governments as they try to maintain their status quo on the back of your falling property values.

The Cato Institute has released this chart on taxation and income levels. It shows that the Bush tax cut has lowered the tax rate across the income spectrum from the richest to the poorest demographics.  

On the top end of the income chart lower taxes means more disposable income possibly creating new home sales but we are talking size of homes or second homes that would have been bought irregardless. However, for the bottom 50 percent of taxpayers you will see that the effective tax rate is about half of the rate paid in 1990 at 2.98% (via taxfoundation.com). Would this money be part of what fueled the housing boom?

I do not have the answers to this but it is an interesting question. With the bottom 50 percent of households having essentially no taxes owed, is the mortgage deduction that important to voters? An astute politician could promise bread and circuses to the public on the back of cutting or getting rid of the mortgage deduction and quite possibly get away with it.

Please give your feedback in the comments as this is a large question and I can not try to answer it all myself. All I do know is that a great deal of income is in the hands of the American people that was not there in 2000 and that is a great thing.