© 2012 Cengage Learning

Taxes and Assessments Chapter 14

© 2012 Cengage Learning In This Chapter You will be introduced to ad valorem taxes and various types of property assessments.

© 2012 Cengage Learning 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

© 2012 Cengage Learning Expressing Property Tax Rates

© 2012 Cengage Learning Other Taxing Matters Unpaid property taxes Assessment appeal Property tax exemption Property tax variations Special assessments Tax Limitation Measures

© 2012 Cengage Learning Special Assessments AN IMPROVEMENT DISTRICT TEXAS HOMESTEAD EXEMPTION BOND ISSUES APPORTIONMENT

© 2012 Cengage Learning Federal Income Tax Basis is the price originally paid for the home plus any fees paid for closing and improvements.

© 2012 Cengage Learning 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.

© 2012 Cengage Learning Long Term Capital Gain Holding period longer than 1 year Tax rate

© 2012 Cengage Learning Calculation of Gain

© 2012 Cengage Learning Adjusted Sales Price Selling price of old home Less selling expenses Less fix-up costs Equals adjusted sales price $250, ,000 -7,000 $225,000

© 2012 Cengage Learning 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.

© 2012 Cengage Learning 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

© 2012 Cengage Learning 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.

© 2012 Cengage Learning Key Terms Adjusted sales price Ad valorem taxes Appraisal Review Board Assessed value Basis Gain Installment method Mill rate Tax lien