A lot of what people and the media are talking about these days is tax rates and taxes. Some are wondering why their taxes didn’t go down while others don’t mind them being the same or even a bit higher, but questioning why they’ve gone up so much.
The argument is that it’s not fair that some are paying less in taxes this year while others are paying more. Home owners who live in areas where values dropped the most are typically getting a tax reduction while those that live in areas that didn’t get hit as hard and held their values better are paying more in taxes.
Personally, I don’t think you can have your cake and eat it too. You may be paying more in taxes this year, but it’s because you’ve lost less in market value than others. You may be paying 1, 5 or even 10 percent more in taxes than last year while someone a few miles down the road in another community is paying 1, 5 or even 10 percent less. But they’ve lost 50 percent in market value since the market turned while you’ve lost 25 percent.
Let’s break it down in plain English…
Let’s say you paid $6000 in real estate taxes last year and this year’s tax bill went up by 10 percent – that’s an increase of $600. But your market value at the peak of the market was $650,000 and now it’s $487,500 (25 percent decrease).
The home owner in the community down the street paid $3000 in real estate taxes last year and this year’s tax bill went down by 10 percent – that’s a decrease of $300. But their market value at the peak of the market was $350,000 and now it’s $175,000 (50 percent decrease).
Would you trade your 25 percent decrease in market value for a 50 percent decrease in market value just to pay a total of $1200 less in taxes?
(Personally, I’ll take a 10 percent increase in taxes over an additional 25 percent decrese in market value any day of the week and twice on Sunday)
Some more food for thought…
The more your market value declined since you bought the property, the less chance you have of being able to refinance (due to Loan-To-Value requirements by the lender). There are hundreds of thousands if not millions of home owners that are too upside down to be able to refinance at today’s historically low interest rates. Refinancing at today’s rates versus the rate you got a few years ago could easily mean a monthly cost savings of $25, $50 or even $100+ per month.
This is yet another reason why I’d rather take a slightly higher tax bill and a smaller loss of market value.
Some people will still say that there’s got to be a way to make things more fair (for them). I don’t think there’s a way to do so aside from wasting countless hours and resources trying to create an algorithm that rivals Google’s secret search results and ranking algorithm. And I don’t think it’s necessary. The bad comes with the good…