I had a startling chat with my sister-in-law recently. She’s British, but lives in the US, working for a large US Corporation. She’s recently bought a house for (an astonishing) $2.5 million. Yes, she is loaded.
But what amazed me was the tax she has to pay on this house - c. $45,000 per year. She described this tax as sort of equivalent to the tax we pay in the UK called ‘Council Tax’ - a yearly amount we pay, roughly based on the value of our home, to fund local services such as schools, roads, parks, waste collection, social care etc.
Now, I appreciate my house is worth a fraction of hers, but my annual council tax is about $2600 p.a. Even if I lived in a mansion, the max I would be pay is about $5000.
So I guess the question is, does that sound right? What do you pay?
The amount paid in property taxes is going vary wildly based on where the house is located. Not just the state, but also the city, county, and school district. All of these (plus others) can be taxing entities and all set their own rates.
I believe she’s still paid in ££s - she’s moved all over the world with this company, and has always paid UK tax. Not exactly sure how it works. Worst of both worlds probably!
I wouldn’t like to guess at her salary/bonuses etc. A sizeable sum.
Generally speaking in the USA, states fund themselves almost entirely via some combination of tax on your income and tax on property you own. Some states tax income heavily & property lightly. Others are vice versa, even to the point of having zero income tax and raising substantially all revenue via property tax.
Of course states also vary in what their total tax take is versus the size of the state’s economy & population. Some states have a large total tax burden and other tax little (and deliver little in the way of services like serviceable schools and usable roads and such)
As an example, I live in Florida. Which is middling in terms of total tax take, but has no income tax, so property taxes carry the bulk of the state’s revenue load.
I was paying about $7K / year in property taxes on a place I just sold for $600K. So on the order of 1% of the sale price per year.
One of the other things that occurs in many states is that property taxes are capped at a low or no rate of increase for existing property owners. Once you buy a place, the price may appreciate greatly while the taxes rise hardly at all.
Of course to balance the State’s books, when the place is sold the property taxes for the new owner will be vastly higher than what you were paying. It’s essentially a subsidy to the folks who don’t move paid by the folks who do move.
The person who bought my place will pay about $12K in taxes this year. So more like 2% of the price per year. Which in turn will be capped for them while the price keeps increasing (they hope).
Overall it sounds like the OP’s SIL bought in a state with relatively large property taxes and a cap-and-reset provision.
I believe in most states where income tax is zero or at least low, the balance is made up with sales taxes.
I also believe that most property taxes are strictly local, and that they fund the local government (city, county, school district, other revenue districts) budgets, where they pay for things like police, fire departments, schools, etc.
I lose track of exactly what I pay because it is included in my mortgage payments, but I think it’s around $9K for a house that theoretically is now worth more than $1 million. It is lower than it would otherwise be due to a California proposition passed a number of years ago about property tax increases. They don’t keep up with the market here until the house is sold.
I’m not too far away from Dinsdale, though I’m in Cook County, which generally has higher taxes. My home’s market value is around $350K; my annual property taxes are around $11,500 – which is pretty steep.
I’m looking at my property tax bill right now, and it itemizes what my property taxes are paying for, including:
Elementary and high school districts
Community college district
Operating expenses for the village, and the county
Regional water reclamation district
County forest preserve district
In addition, we have sales taxes, which are primarily a state-levied tax, though Cook County adds in an additional tax rate. Income taxes are at the state level, and seem to primarily fund operation of the state government. And, then, there are gasoline taxes, which fund the highways.
We paid around $6,000/year on our condo (which we’ve since sold) that I’d purchased for under $400K. We actually paid around $5000 because we lived in our unit; if we had rented it out we would have paid the full amount. That’s in MA, in a town with a fairly robust commercial tax base. When I lived in NH (no sales tax, no income tax) my property taxes were MUCH higher.
$45,000 on $2.5 million seems a little high to me. But not absurdly so, depending on where she lives. If this is right, the property tax rate in 2020 ran from 0.02% to 5.53% (curiously, both the highest and lowest were in Michigan).
Where I live, the property tax rate is about 1.1% of the assessed value (which may or may not track the actual market value).
Like others have said, this is going to vary widely by location.
Here in Texas, for example, there is no state income tax for individuals; we instead pay higher property taxes, so the more home you own, the more you pay. Additionally, the laws and mechanism for gauging the value of one’s home are complicated - so much so to the point that arguing with the local taxing authority (generally, the county you live in) about its value is actually an expected part of the process on an annual basis.
I’m in a weird position because I live in the city of Fort Worth, which is mostly located in Tarrant County. However, my house is just across the line in Denton County, so I pay some taxes to Denton County for the school district and county taxes, but Tarrant County collects city taxes on behalf of Fort Worth, meaning I get bills from two different counties - one of which I don’t actually live in!
To complicate matters further, the state legislature has passed legislation (and the state governor has signed it) which increases the “Homestead Exemption” from $40,000 to $100,000 when calculating school district taxes. This means the state will potentially ignore an additional $60,000 of my home’s value when calculating my share of support for the local school district. This is expected to go into effect for this year, but will only actually happen after the election in November, when a new constitutional amendment limiting further property tax changes goes on the ballot.
TLDR; according to Denton County, my home is worth about $486,000, and with the exemptions I get because this is my primary residence, I’m looking to pay about $7,600 in property taxes for 2023.
How services are funded is probably different everywhere in the US. School districts have taxes ( which may be lumped in with property taxes) and there are property taxes (usually imposed by counties or cities ) and sales taxes ( which is usually part state and part county or city) and some places have state/local income taxes .
I pay about $4700 in property tax on a house worth about $650 K - I know people nearby who pay two or three times that much on house that are worth less - but I live in a city that has its own school district and provides all services, unlike other nearby areas where there are separate school districts and fire districts etc. I pay another $3000 or so in city income tax, so maybe $8K total to the city between property and income. On a 2.5 million house, I’d be paying about $25K in property tax - plus whatever local income tax I owed. So probably at least $45K. I know you said your council tax is about $2600 per year - but your SIL may not be paying any state or local income taxes. Do you pay any sort of income tax that goes to parks/schools roads? Because your SIL may not.
Illinois leads the nation in our number of independent taxing authorities. As kenobi observes, the property tax bill has a number of line-items, from a variety of authorities. We pay our taxes to the county, and our property is assessed by the township. In addition to the separate taxes kenobi lists, most of them have retirement funds which are listed separately on our bill.
I googled “does Oak Brook IL have a property tax” and found many responses such as:
Residents pay no municipal taxes , so purchasing a $1mm home in Oak Brook would come with a tax bill of around $9,700 in annual property taxes versus Hinsdale where the annual property taxes would be around $14,700 assuming the assessor placed a $1mm market value on the property.
I’m pretty sure (but may be wrong) that the states authorize a MAXIMUM tax rate, and local taxing bodies decide whether to tax at the max allowable or a lower rate.
I don’t know what our property is assessed at, but I’m pretty comfortable that I could get $650-750k for it. So multiply that x4 to get $2.5 million value, and multiply my $12k taxes to $48k - higher than the OP. Where does your sis live, OP?
I am regularly amused at wealthy people who complain about the high property taxes - which are generally a pittance compared to their income/wealth. Then, after they have taken advantage of the schools, they retire to FL or TX - and then bitch about the crap services!
It sounds to me like a homeowner in Oak Brook wouldn’t be paying any municipal tax on their property, but would still have to pay the taxes that are assessed by DuPage County, and maybe school district taxes.
You don’t want to live in Missouri, where you have to pay sales tax on car (10%), plus local property tax every year for license plate (why there’s so many expired temporary plates)
Not so where I live (Tacoma, Pierce County, Washington). According to the Assessor/Treasurer, my breakdown looks like this:
Percentage
Recipient
37.30
Local School
22.30
State of Washington
18.90
City
10.40
Metro Parks
7.00
County Tax
1.50
Transit
1.30
Port
1.00
Flood
0.30
Conservation Futures
My property tax rate this year is $11.23 per $1000 assessed value, and the bill is a little under $4000.
It should be noted that Washington has no state income tax, though it does have a 6.5% state sales tax (plus local sales & use taxes that vary by location).
Substantially every state levies a sales tax on cars. A few states have no retil sales tax, and hence no car-buying tax, but they’re teh exception, not the rule.
I’ve lived in MO. The annual “personal property tax” on cars is a PITA, but most states charge something similar. The difference is that instead of paying it to the county tax assessor like MO does, in other states you pay it to the state DMV when you renew your plates. And they send it to your county. Not much difference really. Yes, the MO rate on vehicles is a bit steeper than many other states. Then again, both MOs real property taxes and state income taxes are pretty low.
