Nobody likes to pay tax; this is a universal truth. Since we’re in the mid of income tax season, there’s been a lot of tax policy discussion about the adverse impacts of the property tax that the Americans pay either directly or indirectly.
About a decade back, pollsters at CNN, USA Today and Gallup sought to identify what tax was the most disliked. Many experts expected that income tax would be the topper of this distinction, considering all the time that Americans spend on their returns. Yet by over 2 to 1 margin, estate tax topped federal income tax to be the most hated, with more than 40% of the surveyed people picking the said tax above other available tax options.
Key reasons to consider property tax to be the most hated one
1. It’s not progressive – Property taxes usually are imposed as flat rates on the property value. And this makes it completely different from income tax system that requires high-income taxpayers to pay higher percentage of income in taxes than those with lower income. Rather, many from the latter group end up getting money back or tax refund from the government through several different credits specifically aimed for the betterment of the poor Americans.
It is true that those who don’t own a home need not to pay property tax. But landlords always pass through their taxes in setting rent and with rise in property taxes; they tend to raise the rent to match with their tax expense. And this leaves almost every American face the negative effects of estate tax.
2. There’s no way to curtail the property tax – When it comes to taxes other than an estate tax, you’ll find ways to cut down our tax. For example, contributing to traditional IRA or taking advantage of different credits and deductions would allow you to save on your income tax. Quite the contrary, property tax is almost out of control. If you own a home, you’ll definitely owe property tax, and the calculation leaves almost no room for error. Contesting your estate valuation would give you some reduction, but typical tax planning just won’t work when it comes to property tax.
3. Property tax is ever changing and typically rising – Tax rules generally stay constant. Changes in sales tax occur once in a while and slight adjustments to income tax take place with inflation each year. But estate taxes are subject to the discretion of local government entities that set them. Though some states have implemented laws to prevent unjustified fluctuation, the property tax rises homeowners face is quite drastic from year to year. And this makes is almost impossible to schedule a budget for property tax.
4. Deduct estate tax on income tax return – You can consider estate taxes paid as a permitted itemized deduction on federal income tax return. This really makes sense monetarily to itemize the tax instead of taking conventional deduction, though a straightway deduction for the paid taxes can save you substantial fraction of the amount you pay in estate taxes and minimize the amount you need to pay the IRS.
5. You may end up paying several different estate taxes – In case of other taxes, there’s only one taxing authority to reach into your pocket. Respective state tax board and IRS are in the charge of income tax while the retailers collect their required sales tax in their discreet way. But with estate tax, you may have to end up paying different governing bodies based on how good the local taxing authority works and this is seriously annoying. For example, some localities put city, state and country estate taxes into one single bill. Municipal services like sewer access and garbage collection may also get included into your property tax bill. And all these taxes may end up into a huge bill and that’s really confusing to see who’s charging how much depending on the category of spending. And this makes it even more difficult to look for some feasible ways to curtail the tax.
6. Rules for property tax breaks are hard to find – Even where there is provision for the property owners to get a tax break; it’s actually tricky to get required information about them. For example, many American states allow elderly homeowners to pay lower rates, but to get that advantage, they need to apply for favorable treatment – otherwise they won’t get it. Other provisions to exempt homesteads are really problematic and puzzling to claim. However, you should coordinate with the local assessor to know the breaks that you may qualify to get; take full advantage of them, without fail.
7. Understand what you need to do if you don’t agree with assessment – Property tax is typically calculated depending on the valuation of the property. If the assessor gets wrong home value, you can always appeal assessments. Though every locality has its own set of rules regarding this, they give you chances to persuade the tax man to make needed correction. But for that, you must have solid evidence that the assessed property value doesn’t match with the market condition. Comparable sales numbers don’t always help you win the case, but they can help you in asserting that you’ve been unfairly treated.
Property tax can be really daunting and confusing as well. It would be better to consult a tax expert before you finally pay the tax bill.