Deferring property taxes: poll

[Meadbh]

As of this year, I am eligible to defer property taxes on my principal residence. Taxes plus interest would be repayable when I sell, get a new mortgage, or die. Interest rate on the property taxes would be prime minus up to 2%. Current interest rate is 1%. I currently have no mortgage but have a HELOC with a balance of zero and annual property taxes were $1670 in 2012. I have just ER'd and obviously want to minimize withdrawals. Do you think this is worth my while, yes or no? (No sitting on the fence!)

Details below:

Finance - Property Tax Deferment Program

 

[Gill]

We really need more information. The debt could become pretty substantial if the prime rate were to rise considerably. Do you have the funds to pay the tax balance in that situation?
Bruce

 

[REWahoo]

From my perspective your property taxes are a small expenditure - less than half what I'm currently paying in retirement. But as MBM points out, we'd need more information to know whether or not it represents a substantial portion of your annual expenses. I suspect not, and if that's the case I'd rather pay up now and avoid having an ever-increasing debt hanging over my [-]heirs[/-] head.

 

[Meadbh]

we'd need more information to know whether or not it represents a substantial portion of your annual expenses. I suspect not, and if that's the case I'd rather pay up now and avoid having an ever-increasing debt hanging over my [-]heirs[/-] head.

~3% of yearly expenses in 2012.

 

[REWahoo]

~3% of yearly expenses in 2012.

At that level I would pay rather than defer.

 

[Animorph]

I'd defer until the interest rate looked excessive. Keep the would-be tax money in your normal AA until then.

 

[W2R]

At that level I would pay rather than defer.

+1 Pay! If it turns out that you don't have enough left to put food on the table, then next year you could always reconsider.

 

[haha]

If you plan to live there forever, just be sure you have burial insurance and perhaps ltc policy, and then it is their problem.

Ha

 

[Gumby]

I see it as a floating rate note with an ever increasing balance. Many issues would inform my decision if I were you. Do I have heirs to whom I want to leave my house? Is it likely that I will need to sell and move to assisted living someday, thus triggering a repayment obligation? Do I have sufficient cash flow to make the payments now, without deferral? What is my view for the likely trajectory of interest rates in the years ahead?

 

[foxfirev5]

I would keep this option as a last resort or plan B. My impression is that deferring is like kicking the can down the road. It doesn't appear you need to do that.

 

[obgyn65]

I agree with a previous poster - we need more information.

 

[ERD50]

I agree with a previous poster we need more information.

Also agree. I'm not sure I follow this:

prime minus up to 2%. Current interest rate is 1%

What determines the 'minus'?

If interest rates stay fairly low, it seems unlikely this debt could ever exceed the value of the house, so you would not put a burden on any heirs.

But at 1% or there-abouts, I'd let it ride, and pay it off if/when it seems prudent. But I'm not afraid of debt, it's just a tool. I know others see it as the devil incarnate.

edit/add - I didn't vote, for lack of info

-ERD50

 

[Meadbh]

I agree with a previous poster - we need more information.

What information would you like, obgyn?

 

[LakeTravis]

That actually sounds like a pretty good deal to me; Texas charges a flat 8% per year when deferring the already-high property taxes.

 

[Htown Harry]

I voted no, but my perspective is influenced by the high interest rate Lake Travis mentioned. And the fact that I'm currently paying about 10% of annual spending on property taxes.

If you do decide to go for the deferral, you should look over the fine print in your HELOC agreement first. It may be that the bank HELOC agreement says you need the bank' permission before entering into the deferral agreement.

This paragraph on the web page you linked is what brought this to mind:

If you want to refinance your home, your mortgage holder may require the full repayment of the deferred taxes before approving the refinancing. The Tax Deferment Office will not grant priorities to financial institutions to place their charge ahead of the tax deferment lien.

 

[pb4uski]

Would you borrow from your HELOC to pay property taxes rather than take a withdrawal? If yes, then defer because the substance of deferring is similar to borrowing. If no, then pay.

 

[Bikerdude]

As someone who spends 13% of annual expenses on prop tax and still manages to spend more on cigars than your total prop tax, I vote no.

 

[obgyn65]

Well I am not a financial planner or anything like this but I when saw your post I thought :

1. how old is Meadbh ? Your decision may not be the same if you are in your late 40s or early 70s for example;

2. what is her principal residence worth ?

3. what is her annual withdrawal (e.g. if your annual withdrawal is $100,000, deferring taxes may not be worth the hassle / worth the time).

4. Does she have heirs ?

Good luck in your decision.

What information would you like, obgyn?

 

[Meadbh]

Here you are

Well I am not a financial planner or anything like this but I when saw your post I thought :

1. how old is Meadbh ? Your decision may not be the same if you are in your late 40s or early 70s for example; 55

2. what is her principal residence worth ? $300K

3. what is her annual withdrawal (e.g. if your annual withdrawal is $100,000, deferring taxes may not be worth the hassle / worth the time). $53K spent in 2012; $75K withdrawal planned in 2013

4. Does she have heirs ? estate/charitable fund

Good luck in your decision.

 

[obgyn65]

Thank you for sharing. Last question - are you planning to stay in this residence for a very long time? If the answer is yes, then deferring taxes may be worth considering simply because 30 years of taxes = one full year of total withdrawal. Or the annual taxes could be used to buy LTCI for example. Again, my 2 cents only.

 

[Meadbh]

Last question - are you planning to stay in this residence for a very long time?

Probably, but who knows?
But the money spent on property taxes would'nt buy much LCTI. I've already checked.

 

[JoeWras]

Does Canada/BC let you deduct property tax from income? The USA does, along with most states, if they itemize. That's just a bit of a factor.

I still voted "no". Just doesn't seem to be worth it at that small amount.

 

[LakeTravis]

It appears everyone is consistent in this case (No).

But what if:

1. The annual taxes were high (say, $7K per year and likely to increase)
2. The annual percentage charged by the state to defer was high
3. You do not plan on selling nor leaving an estate

A home with $7000 a year annual taxes in Texas (appraised value of $250,000 or so) deferred at 8% a year over 25 years (age 65-90) would be a tax bill due of no less than $600K.

Would your answer change? At first glance, it appears under those conditions the higher the state's greed, the higher the risk to the state.

 

[Walt34]

I also voted no, with the caveat that there isn't enough information to make a decision here.

To me it's just the issue of an ever-increasing debt that will be an unknown quantity, and the principle that "if you can't afford the taxes you can't afford the house". That and deferring maintenance gets a lot of people into trouble.

 

[militaryman]

If you could attain a safe rate of return above 2% I would defer the payment and instead each year "pretend" to make the payment into that safe investment (with return above 2%) and consider that I am making an investment with that money that is giving me at least a 100% higher return than what it would otherwise be saving me if I paid the tax each year --- This way of course the $$ is all there should you decide to sell, etc

I know the amounts are small and that is the only reason I might decide to just go ahead and pay it but logically just extrapilate it out and talk in millions instead of thousands ....

If the tax payment was $1.67 mil a year then the 1% interest charged to defer is $16,700 BUT because you had a safe investment that would return +2% then you would make at least $33,400 by deferring it -- well of course it would seem very clear to me at that point to defer, yes?