Property taxes are local taxes that you need to pay annually for your real property. The amount of property taxes generally depends on the market value of your property. However, for the calculation of property taxes the tax base may take into account the land and buildings or other infrastructures too. Based on the configuration of your property, property taxes could be classified into Land, Improvements to Land and Personal (or moveable) categories.
How property taxes are calculated
Some states of USA follow an exception by not charging property taxes from Personal properties but realty investment property taxes are levied in all the states of America. The appraisal of the real estate investment taxes although performed at a local level is supervised by the state to ensure uniform application of the state property tax laws. Property assessment is performed at 100% of market value.
While evaluating the value of your property, an appraiser can use any of the three accepted methods – income approach, market value approach and replacement cost approach. If you are not satisfied with the particular method chosen for your property taxes valuation, you may approach a specific property taxes appeal board of the state you belong to and voice your protest.
For calculating the property taxes of your realty assets, the taxing authority undertakes an appraisal of the monetary value of the property and property taxes are assessed in proportion to that value. The property tax is generally represented as a millage rate or mill levy, calculated by multiplying the mill rate (which is one-thousandth of a currency unit) with the assessed value of your property and dividing the product by 1000.
The responsibility of determining the extent of the millage rate lies on the local taxing authorities. However, the chief elements of property taxes calculation are the tax base and tax rate. The tax base is determined by calculating the taxable value through the appraisal of the property. To this tax base, a tax rate is applied for calculating the total amount of property taxes due.
What kind of property attracts reduced property taxes?
If your property belongs to a professional tax depreciation schedule, as an investor you can enjoy greater depreciation benefits like enhanced after-tax return from your real estate investment taxes. Since the holding costs for depreciated properties (aged over 40 years) lessen over time, you would have to pay lower property taxes under building write-off allowance.
If your tax depreciation report mentions additional depreciation benefits, you could use the chance to generate a cash flow through plant and equipment claims. The equipments enlisted under this benefit could include AC, carpet, clothes dryers and also fire extinguishers, gym equipment, closed circuit televisions and monitors if you have strata titled property.
The depreciation time limit for plants and equipments is much lesser than that of building cost allowances. However, if you could qualify for both these property taxes reduction slots, you could enjoy great lower taxation benefits. Hence, if you opt for an older property over a newer one with high-quality buildings, you will have to lesser investment property taxes per unit of space.
How to reduce property taxes by Buying Real Estate iInvestment Properties
If you are planning to invest in real estate and yet pay less investment property taxes, you ought to have a basic idea of what kind of property can serve your purposes. Generally, residential property assessment is done at 32% of fair market value while commercial property is assessed at 32% of fair market value.
You can claim depreciation only on improvements and not on land. If you buy properties such as apartments or leasehold properties that have high improvement component compared to the land value you will be able to get more tax refunds because of the depreciation.
Besides these, real estate investment taxes offer deductions like mortgage loan interest, insurance premiums (though not applicable for homeowners) and maintenance expenses. The maintenance expenses would be considered deductible from your property taxes only when you are undertaking rotting wood repairs or painting jobs, which will be definitely higher for older, depreciated properties.