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Chapter 15 Taxes and Assessments. Review Gov’t Limitation of Private Ownership of Real Estate. Taxation (Ad valorem and Income) Escheat Eminent domain Police power. I. Ad Valorem Taxes. Administering Property Taxes First step, identify all properties and estimate their values

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review gov t limitation of private ownership of real estate
Review Gov’t Limitation of Private Ownership of Real Estate
  • Taxation (Ad valorem and Income)
  • Escheat
  • Eminent domain
  • Police power
i ad valorem taxes
I. Ad Valorem Taxes

Administering Property Taxes

  • First step, identify all properties and estimate their values
  • Second step, develop a budget and tax rate.
    • The budget is determined by the appropriate government officials based on the costs of providing government services to the community (police and fire protection, schools, libraries, street, etc.)
    • Dividing the budget amount by the tax digest (total value of properties in the jurisdiction) yields the tax rate necessary to generate the budget amount.
  • Third step, bill the property owners and collect the taxes.
key terms calculations
Key Terms/Calculations
  • “Ad valorem” tax
  • Millage rate
  • Assessment ratio
  • Exemptions
  • The tax bill for a property with a market value of $120,000 in a jurisdiction that assesses a millage rate of 25 mills on 40% of a property’s market value and permits a exemption of $2,500 for this type of property is calculated as follows:
tax bill calculation
Tax Bill Calculation

Market Value $120,000

multiplied by Assessment Ratio x .40

equals Assessed Value $48,000

minus Exemptions (if any) -$2,500

equals Taxable Value $45,500

divided by 1000 1000

times Millage Rate x 25

equals Property Tax $1,137.50

slide6

Mill Rate

Dollars per

Dollars per

Hundred

Thousand

School

40 mills

$4.00

$40.00

district

City

30

3.00

30.00

County

10

1.00

10.00

Total

80 mills

$8.00

$80.00

Expressing Property Tax Rates

slide7

Calculations using Mills

  • Tax appraised value
  • Assessed value
  • Millage rate (e.g., 80 mills; see previous slide)

Move decimal:

  • 85 mills = .085
  • 215 mills = .215
  • 5 mills = .005

Result: Tax Bill

other taxing matters
Other Taxing Matters
  • Unpaid property taxes
  • Assessment appeal
  • Property tax exemption
  • Property tax variations
  • Special assessments
ii income tax on sales
II. Income Tax on Sales
  • Ordinary Sales
  • Installment sales
slide10
A. Ordinary Sales:
  • Basisis the price originally paid for the home plus any fees paid for closing.

[Purc. price + Closing costs +Commission = Basis]

  • Adjusted basis: basis plus improvements.

[Basis + Improvements (if any) = Adjusted Basis]

  • To calculate the gainyou must take the sale price and subtract the selling expenses (“amount realized”) [Selling price - Selling expenses = Amt Realized].

Then subtract the basis (adj. basis) to determine the gain.

[Amt realized – Basis (adj. basis) = Gain (loss) on sale]

slide11

Calculation of Gain

Purchase price $90,000; closing costs are $500 Basis $ 90,500

Add landscaping and fencing for $3,500 Basis $ 94,000

Add bedroom and bathroom for $15,000 Basis $109,000

Sell home for $125,000; sales commissions Amount realized $117,000

and closing costs are $8,000

Amount realized $117,000

Less basis -$109,000Equals gain $ 8,000

capital gains tax rate
Capital Gains Tax Rate
  • 15 percent
  • If property held longer than 1 year
income tax exclusion
Income Tax Exclusion
  • Sale of principal residence
  • Used for 2 of the last 5 years
  • Married – exclude up to $500,000 gain
  • Single – exclude up to $250,000 gain
slide14

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

iii miscellaneous
III. Miscellaneous

A. Tax Deductions

B. Interest Deductions

C. Conveyance Taxes