Tax Hearing

As you will recall, I was appealing the tax assessor’s valuation of my old house because I felt that the house had been undervalued for tax purposes. Since that would actually increase the taxes in my new house (I explain that here) I decided to appeal the valuation. The hearing was just a few days after my mother had passed away, so I will admit that I wasn’t as prepared as I should have been.

The hearing was in front of a magistrate. One thing that I felt was unfair about this is that the magistrate was an employee of the tax assessor’s office in another county. Since all of the counties in the state use the same methods and computer software, I don’t feel that the magistrate is an unbiased individual.

Still, I thought that I presented my case pretty well. I pointed out that my house was valued at $154/sf, but every house in my neighborhood sold for $195 to $210 per square foot, even using the assessor’s office’s numbers. Even at the low end, my house was undervalued by a significant margin.

That’s when the excuses started. The assessor claimed that they were permitted by law to subtract the customary costs of sale from the fair market value and then they began pointing out that the other houses that had sold had features that my house didn’t- one had a pool, one was a corner lot, two others were on the edge of the neighborhood, etc. This, according to them, made my house less valuable.

By the end of the hearing, the magistrate and the assessor were both explaining to me that I just don’t understand real estate. Keep in mind that they were all government employees whose judgement means nothing, because they don’t invest in real estate. They merely tax those who do. I was able to show, using the assessor’s own data, that the assessor’s office is consistently 15-25% lower than actual market value. That didn’t matter, I got lectured about how TOP MEN used computers to value this property, and the methods are used all over the state.

So I thought I had lost. I resigned myself to getting screwed by the tax man.

Imagine my surprise when I got the magistrate’s decision. I didn’t get a total win, and I didn’t even get as much as I hoped for, but I did get something. The magistrate recommended that my valuation be increased from $154 per square foot to $164 per square foot. Not great, but the increase will lower my property taxes on the new house by about $400 per year. In total, the deductions from Save Our Homes portability decrease my property taxes by about $3000 a year.

Do I like paying $750 a month in property taxes? No. That’s why I fight to keep my taxes as low as I can, and this hearing cost me $25 plus a few hours of my time. Property taxes and the 6 percent sales tax are the only taxes we pay here in Florida, so it’s just something that we have to live with. At least we don’t have personal property taxes or income taxes. Still, I often wonder what it is we get for that tax rate.

Democrats and Taxes

Florida Democrats are proposing a law that would require HOAs to donate 15% of their dues money to charities in the community where they are located. The bill text is found here. (pdf warning)

This amounts to a 15% tax placed on the backs of all property owners. What this means is that all HOAs in Florida would have to increase their association dues. This will increase the costs of housing for everyone in the state. Even renters.

Democrats: they hate property owners. They hate America. The only groups that they like are sexual deviants, criminals, and illegal immigrants.

So how do you fight this, should it pass? The law doesn’t specifically say what organizations that the donations have to benefit. This is what it requires:

Donate or use at least 15 percent of the association’s total annual income to benefit the community in the county in which the community served by the association is located.

What constitutes a “benefit the community”? Perhaps using it to donate to a progun group, establishing firearms safety courses, or some other pro-liberty cause. I mean, increasing gun ownership benefits the community, at least in my opinion.

Property Appraiser Answer- UPDATE @1350

The county property appraiser has answered my request to increase the market value of the house. They think that I am nuts because I am essentially asking them to increase my taxes. That is wrong in any event. Because of Save Our Homes, my assessed value can’t increase by more than 3% if I stay here, and if I move it actually cuts the taxes in my new home, because it maximizes my SOH credit.

Thank you for contacting our office. I want to make you aware that the value assigned by our office is for tax purposes only, and is not reflective of the resale value of your home. You want this value to be as low as possible. The value we arrived at is what you will pay taxes on. Did this answer your question?

If they had half a brain they would see what we are doing here.

EDITED TO ADD: I told them that I still want my value increased. They replied:

So let me understand your email more accurately: You are requesting that we raise your property taxes?

Now my wife is nervous and says “Are we sure that we know what we are doing here?”

Yes, I am. The Save Our Homes Credit is portable, and increasing the market value on our current home will reduce our taxes in the new house by about $2200 a year.

What is Save Our Homes?

In 1992, Florida voters were worried about runaway property values causing drastic increases in property taxes from one year to the next. With so many people wanting to move here, property values were climbing rapidly, and this was causing property taxes to skyrocket. Amendment 10 was proposed, which is a benefit of the homestead exemption that provides homeowners protection by limiting the maximum that the assessed value of their home for tax purposes can be raised to 3%, or the CPI, whichever is lower. The Amendment to the state constitution passed, and it became the law of the land in 1995.

How does it work? Like anything that relates to taxes and the government, there is a lot of confusing math involved. Let’s say that you live in a taxing district that taxes your property at a rate of 10 mils, and you bought a starter house at #1 First Ave. for $75,000 in 1993. At the time, the state of Florida had a $25,0000 homestead exemption. You would then owe 10 mils on the $50,000 taxable value of the home, or $500 in property tax each year. Your house was valued at $80,000 in 1994, and you paid $550 in taxes for 1994.

A housing boom hits, prices go way up, and by 1995 your home is now valued at $100,000. Your tax bill would have been $750 (a 50% increase from just 2 years before), but save our homes had gone into effect, so the increase in your home’s assessed value only went from $80,000 to $82,400. That means your property tax was only increased to $574.

Eight more years go by, and you decide in 2003 that you want to sell. Your home is now worth $145,000. Of course, save our homes only has you paying taxes on the assessed value of $104,000, minus your homestead exemption, making your tax bill $790 for the year. Anyhow, you get $150,000 for the place. The tax assessor still says it’s worth $145k, and the guy who buys it will have to pay $1200 in taxes in 2004, assuming the value stays at $145k. (you already paid 2003’s taxes)

You, however, bought your second house at #2 Second Street. You were able to get this one for $240,000. Your portable SOH credit was (145,000-104,000=41,000) so even though the tax guy says this place has a market value of $220,000, you will only have to pay taxes on (220,000-41,000-25,000), making your tax bill $1,540.

Then in 2008, voters approved an amendment that increased the homestead exemption to $50,000 for the non-school portion of property taxes. This complicated things even more, but that is a different topic.

Why do these Amendments keep getting voted on? Whenever the Democrats want more voter turnout, they make sure that something of interest to Democrat voters that will drive voter turnout is on the ballot. Tax cuts in property taxes, legalizing marijuana, increasing the minimum wage, saving baby pigs from the slaughterhouse, things like that.

Lawyers: Expensive, but Worth It

There is an old saying: a person who is acting as their own attorney has a fool for a client and an incompetent attorney. In this case, we are talking about real estate taxes. We are in the midst of buying a new home. There are a lot of expenses to consider with a move, and taxes are one of them, especially in Florida. Understanding how Florida computes real estate taxes is important, if you want to pay as little in taxes as possible.

This paragraph is specific to how Florida computes real estate taxes. If you aren’t interested in the mechanics of that, you can skip to the next paragraph. When you own real estate in Florida, the county property appraiser assigns your property a “market value” each year. If you live in your home, you can claim it as your homestead, and every year after the first year that you own it, the value can only increase by 3% for taxing purposes, and this amount is called your “assessed value.” The difference between the market and assessed value is called your “Save Our Homes” credit. You subtract your Save Our Homes credit from your market value to arrive at the assessed value, then your homestead exemption ($50,000) from your assessed value, and that is your “taxable value.” The taxing authority where the real estate is located then taxes you on that value, and the amount of tax you own varies by taxing district. (I know that this sounds complicated and it is, but the end result is that there are only 9 states in the US that have a lower tax burden than Florida (we are tied with Louisiana), so there is that.) The reason that I explain this is because the “Save Our Homes” credit is portable, and this is important when moving.

What’s important here is that, when you are moving, you want your old house to be valued as high as possible, and your new house to be valued as low as possible. This will minimize your property taxes going forward. Since we are preparing to move, I got our current home appraised and sent a copy of that appraisal to the county property appraiser’s office. Each August, the appraiser’s office sends every homeowner a copy of the proposed numbers, and you have until September 15 to appeal these numbers. The appraisal that we got from the county was almost $100k less than what the our private appraiser says it is worth. Since this is how our tax credits are calculated, I need to get this fixed, because allowing this to stand will increase our property taxes on the new house by about $2,200 a year for the entire time we own the place.

To do that, you need to apply to the Value Adjustment Board. It’s a sort of tax court that is run by a county magistrate. It’s a legal process, and I think that it is worth our money to hire a real estate tax attorney to handle the process. My wife wants to just do it ourselves because she says lawyers are expensive. My point to her is that we only get one chance to get this right, and screwing it up will cost us more than $22,000 over the next ten years in taxes that we otherwise wouldn’t have to pay. If it costs a grand or two now, a lawyer is well worth the cost going into the future.

Taxes Are Racist

It’s tax season, and now we have an article claiming that taxes are racist: “Black married couples face heavier tax penalties than white couples,” and it’s pure BS. This is the logic:

When a Black or white couple have the same income, deductions and family structure, they will have the same tax liability, Gale said. But given the average economic differences between white and Black couples, according to the report, Black married couples are still more likely to face penalties and smaller bonuses.

Before tearing into the faulty logic here, I want to point out that “white” is not capitalized once in the article, while “Black” is capitalized every time. A bit of subtle “othering” that happens in journalism today.

So the taxes aren’t racist, it’s just that black married couples have more children than their white counterparts and taxpayers with children generally tend to face larger penalties under our current tax code. So it would be more accurate to say that the tax code discriminates against those with children.

I call bullshit on that, too. If a couple has a child, they get additional personal exemptions, they also get:

  • child tax credit
  • dependent care credit
  • earned income credit
  • adoption credit
  • education credit

Let’s look at two married couples: they have the same income, same jobs, same financial situation. Each couple earns a combined $68,000 a year. Their employers withheld $5,000 from their paychecks for Federal taxes. The only difference is that couple one has no children, and couple two has two children.

Couple one is in the 12 percent tax bracket, with an effective tax rate of 11.03%. They will pay $4,644 in Federal income taxes this year, so they will get a $356 refund.

Couple two has two children. They are both latchkey children, so there are no childcare expenses to deduct. They are also in the 12 % bracket, and had the same effective tax rate as couple two. However, they get more credits, so only wind up paying a net $644 in Federal income tax, and will wind up with a refund of $4,356.

So if in fact black couples have more children that whites, blacks pay LESS in taxes.

Tax Question II, the Search for More Money

If you get the movie reference in the title, bonus Internet points for you. Don’t use them all in one place.

So it seems like I have an answer to my tax problem from Monday. (I am posting this so I won’t lose my train of thought before I talk to the attorney on Thursday.) I would rather set a stack of $100 bills on fire than pay it to the IRS so crooked bastards in politics can use it to make themselves rich, so any way that I can avoid paying taxes that won’t see me land in Club Fed is a good idea, in my book.

The TL:DR version is that I need to sell the old house to an S corporation that my wife and I own. To do this, there are a few things that need to happen:

  • Form a Florida corporation. No sweat.
  • Within 2 months of forming, file an IRS form 2553 (pdf alert)
  • Get the old house appraised
  • Have the newly formed S corp buy the old home for the appraised value (since the sale was not an “arms length” sale, the appraisal proves it was being sold for fair market value)

This allows me to do two things: take the capitol gains deduction for the difference between the original purchase price and the appraised value that the S corp bought it for, and resets the cost basis for the property. This second part is nearly as important. The reason for that is called “Save Our Homes.” To understand Save our Homes, we have to first understand how Florida calculates property taxes.

Ad Valorem

In Florida, the county property appraiser is an elected position that estimates what your house is worth each year, called your “market value.” If your house is your primary residence, you can take a deduction called the “homestead exemption” of $50,000 from that market value. The result is called your “assessed value.” Each July, the property appraiser mails out the proposed value of each property to the property owner. If you don’t think that the value is fair, you have 30 days to appeal that valuation. Most people want it to be as low as possible, because that is the value that your taxes are based on.

The tax collector (also an elected position) charges a “millage rate” as an “ad valorem” property tax. Each “mill” is 0.1% of your home’s assessed value.

It seems complicated, but it really isn’t. For example, let’s say that your house has been deemed by the property appraiser’s office to have a fair market value of $100,000, and your county charges a property tax rate of ten mills. You would take the $100,000 market value and subtract your homestead exemption to arrive at an assessed value of $50,000. The tax of ten mills on that would make your property taxes to be $500 for the year. Clear so far? Good. It gets a bit more complicated.

Save Our Homes

Back in 1995, the voters of Florida passed an Amendment to the state Constitution that limits the annual increase in the assessed value of your homestead to the lesser of 3% or the consumer price index. Since real estate increases more than that in value each year, the longer you own your home, the better. The gap between the market value and the assessed value is called your “Save Our Homes” credit.

In most cases, you want the property appraiser to set your assessed value as low as possible. The only reason you don’t, is if you are about to move to a more expensive home. The reason is called portability. If you are moving from an old house to a new one, you can take your Save Our Homes credit with you. That can mean a significant tax savings.

So how will that help me?

As an example, let’s say that I paid $200,00 for a house, and 10 years later the tax assessor says it has a market value of $300,000. The Save Our Homes credit would be $31,000. If I buy a new house worth $400,000, that house would be assessed at $31,000 less. If the millage rate was ten, this would save me $310 a year in taxes. But what if I could get the tax assessor to admit that my house actually had a market value of $350,000? That would make my Save Our Homes credit $81,000 instead, and this would save me an additional $500 a year in property taxes at my new house.

It would seem to be a wash, since I am keeping the old house as a rental, but remember that the old house’s taxes are deductible as a business expense, and if the millage rate is higher for the new house’s location (which it is), the savings are even larger.