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Taxes and Assessments

Chapter 14. Taxes and Assessments. In This Chapter. You will be introduced to ad valorem taxes and various types of property assessments. Property Taxes. Ad valorem taxes = according to value Source of income for local government Appropriation Tax district appraisers all taxable property

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Taxes and Assessments

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  1. Chapter 14 Taxes and Assessments

  2. In This Chapter You will be introduced to ad valorem taxes and various types of property assessments.

  3. Property Taxes • Ad valorem taxes = according to value • Source of income for local government • Appropriation • Tax district appraisers all taxable property • Assessment by appraisal district • Tax rate calculation • Dollars per hundred

  4. Expressing Property Tax Rates

  5. Other Taxing Matters • Unpaid property taxes • Assessment appeal • Property tax exemption • Property tax variations • Special assessments • Tax Limitation Measures

  6. Special Assessments • AN IMPROVEMENT DISTRICT • TEXAS HOMESTEAD EXEMPTION • BOND ISSUES • APPORTIONMENT

  7. Federal Income Tax Basis is the price originally paid for the home plus any fees paid for closing and improvements.

  8. Capital Gains • To calculate the gain you must take the sale price and subtract the selling expenses; then subtract the basis to determine the gain. • Amount realized – selling price of home less sales expense.

  9. Long Term Capital Gain • Holding period longer than 1 year • Tax rate

  10. Calculation of Gain

  11. Adjusted Sales Price Selling price of old home Less selling expenses Less fix-up costs Equals adjusted sales price $250,000 -18,000 -7,000 $225,000

  12. TAXES ON SALE OF A RESIDENCE • A taxpayer can exclude $250,000 of gain from the sale of the taxpayer’s principal residence. • If the taxpayer is married, there is a $500,000 exclusion for married individuals filing jointly, if: • either spouse meets the ownership test, • both spouses meet the use test and the taxpayer has resided there for at least two of the past five years, • a husband and wife file a joint return in the year of sale or exchange, and • neither spouse is ineligible for exclusion by virtue of sale or exchange of the residence within the last two years.

  13. Income Tax Exclusion • Sale of principal residence • Occupied for 2 out of the last 5 years • Married – exclude up to $500,000 gain • Single – exclude up to $250,000 gain

  14. Agent’s Liability for Tax Advice • A real estate practitioner must be aware of tax laws that affect the properties the practitioner is handling. A real estate agent has a responsibility to alert clients to potential tax consequences, liabilities, and advantages whether they ask for it or not. Lastly, an agent is responsible for the quality and accuracy of tax information given out by the agent.

  15. Key Terms • Adjusted sales price • Ad valorem taxes • Appraisal Review Board • Assessed value • Basis • Gain • Installment method • Mill rate • Tax lien

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