Tax-Reform and the Housing Market.

[Danny]

A tax-reform commission appointed by Bush is looking at ways to eliminate the Alternative Minimum Tax. To do that they are looking at messing with mortgage interest & local tax deductions....and some other things.
I'm thinking that with rising interest rates and tax-reform, the housing market will deflate.

http://msnbc.msn.com/id/9674994/

 

[brewer12345]

These things will never pass. The Congressional leadership is too budy with infighting and dealing with indictments and the white house has its own scandals to worry about. Have you seen the latest approval polls? No politician worried about the next election will be trying to push these controversial items through.

 

[ProfHaroldHill]

A tax-reform commission appointed by Bush is looking at ways to eliminate the Alternative Minimum Tax. To do that they are looking at messing with mortgage interest & local tax deductions....
http://msnbc.msn.com/id/9674994/

I would like to see some data that show the median income of the group that would gain most if the AMT is abolished vs the median income of the group that would lose most if the deductions for mortgage interest and local tax go away.

HH

 

[retire@40]

It looks like somebody needs more money from the real estate/banking/mortgage lobbies.

Push hard, get some money from the lobbies, scale back.

Isn't that how the game is played?

 

[HFWR]

How cynical...

 

[SteveR]

Another big problem those on a fixed income are experiencing now (other than rapidly rising energy bills) is realestate tax increases. Many areas are seeing RE taxes go up and up due to the RE bubble. This is causing a major increase in the funds needed in retirement (until the bubble breaks and the taxes fall again...but this will take some time). Looks like those planning on ER also need to take this into account in their planning.

 

[brewer12345]

Another big problem those on a fixed income are experiencing now (other than rapidly rising energy bills) is realestate tax increases.  Many areas are seeing RE taxes go up and up due to the RE bubble.  This is causing a major increase in the funds needed in retirement (until the bubble breaks and the taxes fall again...but this will take some time).  Looks like those planning on ER also need to take this into account in their planning.   

I'm not so sure about that. If you are FIRE'd and property taxes go through the moon, you can move. Simple as that. In contrast, us working slobs have a lot less flexibility. My RE taxes are $6k a year (on top of hefty income taxes, sales taxes, tax taxes...). Can I go to a lower tax area? Nope, I have to have access to the labor markets I am near.

 

[ProfHaroldHill]

If you are FIRE'd and property taxes go through the moon, you can move.  Simple as that. 

You can move, but only if you're willing to leave your family, friends, doctors, banks, etc, etc, behind . . .

HH

 

[brewer12345]

 

You can move, but only if you're willing to leave your family, friends, doctors, banks, etc, etc, behind . . .

HH

Family and friends I will give you. Doctor? No problem. Banks? Are you kidding? Only reason I am ever near a bank is to use an ATM, and in that case I really couldn't care less which bank it is.

 

[SteveR]

 

You can move, but only if you're willing to leave your family, friends, doctors, banks, etc, etc, behind . . .

HH

I agree.  

The point of the post was to draw attention to this as a potential issue with those folks who are already where they want to be but are on fixe income so their options for additional income to cover RE taxes is limited.  Moving may not be desirable or possible for many people.  Those still working can always just work longer to pay the increased taxes.  Retirement planning needs to be flexible enough to consider these kinds of expense increases beyond normal inflation.  

I guess retired people could just sell their homes too and not worry about the higher taxes.   Oh, wait...rents would increase so the landlord can pay the tax so their expenses will still increase no matter if they own or rent.

 

[ProfHaroldHill]

I agree.  

 Retirement planning needs to be flexible enough to consider these kinds of expense increases beyond normal inflation.  

Good point -- I think that this is an important consideration that people contemplating ER often overlook.

HH

 

[Mr._johngalt]

I'm not so sure about that.  If you are FIRE'd and property taxes go through the moon, you can move.  Simple as that.  In contrast, us working slobs have a lot less flexibility.  My RE taxes are $6k a year (on top of hefty income taxes, sales taxes, tax taxes...).  Can I go to a lower tax area?  Nope, I have to have access to the labor markets I am near.

This is a good point. Except for my obligations to my aging parents,
we could up and move about whenever we wished. My kids have moved away. My doctors are mainly in other states, and banks?
Who cares if they are near a particular bank? Being able to sell
and move is a valuable option.

JG

 

[Mr._johngalt]

Another big problem those on a fixed income are experiencing now (other than rapidly rising energy bills) is realestate tax increases.  Many areas are seeing RE taxes go up and up due to the RE bubble.  This is causing a major increase in the funds needed in retirement (until the bubble breaks and the taxes fall again...but this will take some time).  Looks like those planning on ER also need to take this into account in their planning.   

Do real estate taxes ever go down? I've never seen that.

JG

 

[ProfHaroldHill]

This is a good point.  Except for my obligations to my aging parents,
we could up and move about whenever we wished.  My kids have moved away.  My doctors are mainly in other states, and banks?
Who cares if they are near a particular bank?  Being able to sell
and move is a valuable option.

JG

Hi, JG -- it's especially valuable to people who are so dysfunctional that they don't have any ties with their local communities that are worth keeping.

HH

 

[Nords]

Do real estate taxes ever go down?  I've never seen that. JG

Mine sank like a rock between 1990-93 and they went down even faster when I challenged the assessment. They continued to drop until 1998.

Of course the RATE stayed at 3.65 mils, but the $$ AMOUNT was what dropped.

 

[SteveR]

Do real estate taxes ever go down?  I've never seen that.

JG

As Nords said, the rate stays the same but the assessment changes as the value of the house changes. When the bubble pops, valuations will eventually go down too and the amount of real tax $$ will be less than with a higher valuation.

 

[justin]

Mine has stayed the same year to year. On an inflation adjusted basis, my real tax rate has decreased.

 

[ProfHaroldHill]

Mine has stayed the same year to year.  On an inflation adjusted basis, my real tax rate has decreased.

How long have you had the house? Wake County has periodic reassessments (I think every seven years), as you probably know. My property tax doubled with the last reassessment, and has been about flat since then. I expect it to take another jump at the beginning of the next cycle (I sure hope it doesn't double again).

HH

 

[justin]

I've owned for a few years in Raleigh. I expect my tax bill might increase a little with the next value reassessment. Most likely the tax bill will decrease a small amount. Wake County reassesses values every 8 years (next time is 2008). My assessed value is close to the market value right now. I'm sure I can lower the assessed value if necessary too due to certain negative aspects of my property.

Wake County and Raleigh are so financially responsible regarding property taxation, I expect they will lower the rate per thousand like they did last time they reassessed values in 2000. Here's the historical taxes in Wake County by municipality:

http://www.wakegov.com/NR/rdonlyres/D0A9288D-22C1-4420-909E-7F73DB910ADF/0/TaxRateChart.pdf

Wake Co and Raleigh know that an increase in assessed value increases their tax base, so in order to maintain a certain revenue amount, they can lower their tax rates.

Compare this to Chapel Hill and Orange County (NC), where my tax bill there increased by 10-15% each year (until I got out of that hell hole). They just don't care. The government services provided were meager too compared to Raleigh's.

Your assessed property value may have skyrocketed, depending on where inside the beltline you live. Certain areas had growth in excess of the Raleigh average. Therefore, after the 2000 reassessment, you would have started paying a proportionally larger share of the tax burden (ie - they raised your assessed tax value by a larger percentage than they cut the tax rate).

 

[ProfHaroldHill]

You are right about Wake taxation. My jumps have been caused by rapidly increasing property values (in a very "hot" local microcosm, for some reason), not bad tax policy. I guess I should be thankful that the value of my property has increased so much.

HH

 

[justin]

You are right about Wake taxation. My jumps have been caused by rapidly increasing property values (in a very "hot" local microcosm, for some reason), not bad tax policy. I guess I should be thankful that the value of my property has increased so much.

HH

Five points area?

 

[ProfHaroldHill]

7F73DB910ADF/0/TaxRateChart.pdf

Compare this to Chapel Hill and Orange County (NC), where my tax bill there increased by 10-15% each year (until I got out of that hell hole).  They just don't care.  The government services provided were meager too compared to Raleigh's. 

 Chapel Hill is often listed as a prime place in those "Best places to retire" books.  I have never understood this -- CH would be my last chioce for RTP-area living.  OTOH, Raleigh has been great for me (have lived here more than 35 years) . . .

HH

 

[ProfHaroldHill]

Five points area? 

More or less . . .

 

[justin]

Chapel Hill is often listed as a prime place in those "Best places to retire" books. I have never understood this -- CH would be my last chioce for RTP-area living. OTOH, Raleigh has been great for me (have lived here more than 35 years) . . .

HH

I share your sentiments re: Chapel Hill. If I could go back in time, I would have bought property just over the city line in Durham instead of Chapel Hill while I was living in that area. Much more house for the buck and lower taxes and there are actually decent restaurants and retail outlets everywhere.

 

[MJ]

I guess I should be thankful that the value of my property has increased so much.

Only if you plan to sell it. Some people (not me) peobably want to stay where they are til death do they part.

I was wondering, if property values were to go down let's say 30%, would the local government have to re-asess all properties down by 30%.