USA property taxes, for a non-USA person

Factual Questions
1

In this thread :-

I see various comments about property taxes. My impression is they’re very serious, and you can lose your home over them, and it all seems very bizarre to me.

I’m non-American (Irish), and I own my home (own as in have the deeds to it in a safe under the stairs, not own as in have a partnership with a financial institution). Without paying a further penny to anyone, I can live here for the rest of my life, and pass it on to my children, and noone can force this house to be sold under any circumstances. (A major debtor of mine, if such existed,could register a judgement mortgage, where his debt has to be paid out of the proceeds if I ever sell, but he can’t force a sale).

Is this not the case in the USA, and what are the details of this “property tax” concept ?

2

It’s pretty unusual to actually lose one’s house over property taxes. You’d have to be decades in arrears.

If you don’t pay, the county or municipality may file a lien on the property, just like a creditor would, and they’d get paid when the property sold.

3

Property taxes are the main source of revenue for municipalities (cities, towns, and villages), counties, and school districts in the United States. Certain properties are exempt from property taxes: government-owned property, schools and other educational institutions, churches and other religious institutions, etc.

Property taxes are usually assessed at a rate of the market value of the property; the average assessment rate in the U.S. is 1.5% of its market value. Thus, a home worth $200,000 would pay $3,000 annually in property taxes. In some states there is a “cap” on the property tax rate; in California it is 1%.

Whether this is assessed quarterly, semi-annually, or annually is up to the municipalities. In my state, the municipality, the sewerage district, and the school district all send their tax bills to the county tax assessor’s office, where they are combined into one tax bill that is mailed to the property owner.

If a property owner does not pay the taxes due on the property after a certain period of time (often two years) and numerous warning notices, the local sheriff is authorized to evict whoever resides there, and sell the property at auction to pay the back taxes. The remaining income from the auction, after the back taxes are paid, goes to the former property owner (who may also bid on the property).

Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes. For example, if I make $60,000 per year, and I pay $3,000 in property taxes, my taxable income is reduced to $57,000 (no, I’m not paid less by my employer, I just have to report less income to be taxed).

4

Just to add that in the US, if you have a mortgage on the property, the taxes are rolled into the mortgage payment (along with home owners insurance). IOW, you have your principal and interest which goes to the lender, taxes which go to the local municipality and insurance which gors to the insurance co. This makes up your monthly payment.

The tax and insurance components of the payment is put into escrow and disbursed automatically to the municipality and insurance company.

Generally speaking. I’m sure there are exceptions to this.

5

Yes, there are. Not all lenders do the escrow accounts. I have a mortgage and pay my insurance and taxes myself. This has the benefit of ME having the money during the year instead of it being in escrow; it has the disadvantage of ME having to plan appropriately to pay.

6

Where I live, annual property taxes are just a bit under 1.5% of the value of a house. If they are more than 6 months in arrears, a lien will be placed on the property. If this is not discharged, the property can indeed be sold at auction.

This seems not to actually happen until the debt is at least 3 years old, and I have heard of cases where 5 years of taxes have gone unpaid. In practice, the threat of a seizure and auction is nearly always sufficient to cause the owner to pay back taxes.

7

Three years is the maximum the gummit will let you slide in my county.

The County automatically takes precedence over any other creditors by law without having to have a recorded lien. Past due taxes are assessed high compound interest, which is tacked on to the total bill monthly.

Some bills to the property owner – special assessments and other fees and taxes, including, sometimes, child support, alimony, unpaid parking and traffic tickets – can also be attached to the tax bill. They then become due just like property taxes, and must be paid under the same rules. Government bodies love this, since they get their money up front from the treasurer, and the treasurer knows he will surely get his money eventually, with much higher interest that could ever be obtained from conventional market sources.

Property taxes in the USA may go to various governments or government projects, like mosquito abatement, bond repayments, colleges or schools. They are the primary funding for local schools most places, AFAIK.

8

The only thing I would add is that many (Most? I can’t state that in a GQ was - but “many”) of these local entities have some sort of property tax relief program for the elderly and/or disabled.

9

The thing about property taxes is, I bought my house in a neighborhood that’s movin’ on up. I paid $175,000 for it a year and a half ago. If this neighborhood gets to be as desirable as some nearby, the “value of my house” could go sky high without me doing a thing and my taxes would increase along with it. Of course, I could also make a bundle selling in that scenario, but I’d have to move.

In some places, like where my parents live, the government isn’t allowed to reassess until they sell. This is a very big deal, as my folks live near the beach (Fernandina Beach) and in an area where real estate has really boomed. They have also added onto their house and built a pool. (I’m not sure if the government there can add onto your taxes for stuff you build before you sell or not, but trust me - they’re getting a huge deal on property taxes.) Whoever eventually buys their house from them is going to be paying a LOT more in taxes than my parents do now.

10

On the plus side, things like property tax and mortagage interest can be deducted (and are often the main deduction for a homeowner) from federal taxes.

11

A modified version of that was imposed on California by the Jarvis-Gann Initiative (“Proposition 13”), which put a cap on both the amount of taxes that can be assessed on a property (1%) and the amount it can be raised each year. There are several provisions that modify this, and the sale of the property triggers a reassessment. Over time, this has resulted in inequities:

12

In over 20 years of working in real estate, the only properties I see with property tax liens on them are those that have been totally abandoned. Once or twice a year we get visits from the local guvmint asking if we know where the owner of some building actually is living because they can’t find them. We don’t.

13

I don’t know about the rest of the country, but here in Michigan our taxes are charge permil, or just “mills.” In my township/county/school district, I’m at 34.98 mills because it’s my homestead, otherwise I’d by upwards of 50 mills. Of course that’s based on taxable value, which is half (by law) of market (assessed) value, but only market value at time the property was transferred. The taxable value is limited to the rate of inflation with a reasonable, minimum increase each year. I still pay for water, sewer, and trash collection separately, but in some communities some or all of these are included.

14

So there are no taxes imposed on your real property by any government body? How about personal property (furniture, autos, etc.)?

15

How is your local government funded? Highway tariffs? :wink:

16

You aren’t charged per mill, you are assesed a number of mills per $1 of assessed valuation. One mill is one 1/1000th of a dollar. Not to be confused with the almost identical term mil.

So a tax rate of 34.98 mills per $1 of assessed value means you nominally pay at the rate of $34.98 for every $1,000 of property value you have. Of course, in reality it ends up much more complicated in many places, due to exemptions, deductions, rebates, etc. Hopefully, Michigan’s tax bills are somewhat more understandable than Ohio’s, which need a damn accounting degree to understand.

17

According to Wikipedia: Local government in the Republic of Ireland,

So up until the 1970’s, Ireland funded its local government through property taxes to some extent. The same antipathy towards this method of funding that resulted in passage of Proposition 13 in California appears to have swept Ireland at roughly the same time. :eek:

18

Every year at my library (sometimes twice a year), we get a big book from the LA County Tax Collector’s Office which lists all the property tax defaulted properties which are going up for auction.

It is not a small book. Most of the defaulted properties which are actually homes are in the Antelope Valley in the north end of the county, which had a big building boom and had a lot of people moving up there who couldn’t quite afford it once they got there.

One man came to the library asking for descriptions of the five properties he bought at auction, all at pretty low prices. We looked up the parcel numbers and descriptions and he turned out to have bought four alleys between homes and a vacant lot that looked to be completely unusuable.

19

I’d sure like to meet that lucky guy. I could put him in some delightful swampland in Florida and lovely oceanfront property in Arizona. Pictures? We got no stinkin’ pictures!

20

Reliance on property taxes came from an era when a person’s homestead played a larger percentage of his total assets (and income taxes had been declared unconstitutional by the Supreme Court).* Today, with investments, pensions, and life insurance policies included in most people’s assets, one’s homestead is a smaller percentage of total assets than it used to be, thus the value of one’s homestead is not as close an indicator of one’s total wealth as it used to be. Municipalities and school systems get a lot of their budgets now from revenue shared from the state government, which collects taxes based on income, a better indicator of wealth. (But not all U.S. states have a state income tax.)

  • Income taxes were later allowed by an amendment to the U.S. Constitution.