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Wednesday, June 1, 2016

Smacked by Taxes

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Who Pays For Development?

You do.  Development might be a dirty word, but it’s what pays for society.  In a way, we’re all developers, anyone who improves property.  Property tax is based on value property owners create.  Municipalities hit developers, whether individuals or corporations, with fees and mitigation requirements, and the cost of those are passed directly to the buyer, not only in the sale price, but also over and over in annual property taxes.  It’s redistribution of wealth, in another disguise.  Property owners and property developers pay for the local amenities all of us use: roads, schools and colleges, hospitals, emergency services, telecom, bridges, water and sewer, and transportation.  Renters do too, in higher rents. 

But wait, there’s more-- special neighborhood improvement districts, plus some areas have special fire and flood protection assessments, mosquito abatement, or mandatory higher insurance costs.  Special taxes are even proposed on every property within 9 Bay Area Counties to benefit the regional ecosystem.

Elections have consequences.  Look at any property tax bill and you’ll see a full menu of special interests, only there is no choice; it all comes on the bill.  Every ballot proposition can be traced to a line on the property tax bill, paid by property owners.  Even popular ideas cause unpopular tax rates.  Eventually it creates the widening gap between haves and have-nots, or what used to be called the middle class.  This is one reason homes are not affordable for so many.  Whether it is a vineyard being developed, or an estate home, a subdivision of so-called affordable housing or market rate housing, it’s where the Counties and Cities go looking for the money to pay for programs.  Those fees and costs have to be recouped, or investors would never risk financing any development.

It’s all on the property tax bill, whether in Napa, Sonoma, Solano, or Marin or any other California County.

In addition to the tax bill, there can be homeowner association dues and transfer fees.  Property taxes are recurring, but parcel transfer taxes hit sellers or buyers when ownership changes.  Transfer tax can be significant, and varies from County to County and City to City.  Further, a County might have its mandatory upgrades, such as low-flow toilets or sewer laterals, the cost of which are collected at “point of sale.”  There’s even a lobby to force replacement of wood-burning with gas fireplaces, which would be a point of sale cost.

So beware.  Within 25 minutes of one another, two homes each priced $600,000 could have first-year expenses differ between $6,000 and 14,000.  Compound that year in year out, and it really matters!

Everyone should understand the cost of property beyond the sale price. When buying property, make sure you review the itemized tax bill, in view of the old assessment value.  Chances are it will go up for you.

But keep tax burden in perspective.  Let’s say you bought in 2000:  Given the increase in price of an average home, while mortgage rates have fallen, had you refinanced along the way . . . even after principal, interest, taxes and insurance . . . you could have lived in a home all these years for free, taken almost $200,000 mortgage interest tax deduction, and, still made a profit greater than $100,000 selling today!  So, even smacked by taxes, real estate remains the best investment I know of.  Just my sense.

Posted By Linda Fischer At 7:01 PM •
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